Crowdfunding is a kind of business fundraising that primarily uses online portals such as Kickstarter to raise money for a venture.
A relatively new phenomenon, crowdfunding makes it pretty easy for anyone to raise money for their dream project. It expands the pool of your potential investors beyond angel investors and venture capitalists.
In the US, crowdfunding does have restrictions related to who can fund a new business venture and how much they can invest. It’s similar to the restrictions on hedge fund investing. Basically the regulations keep investors from putting too much of their savings at risk since most new businesses fail. This makes crowdfunding a low risk way to invest and a way to get lots of small investments from many people instead of relying on just a few huge ones as is traditionally the case with venture capitalist and angel investors. You can often invest as little as ten bucks to a product or company you believe should exist.
On the most popular platform, Kickstarter an entrepreneur can pitch their idea with a set goal in mind for how much they hope to raise. Only when the project is fully funded does the person get their money. On Indiegogo and other emerging platforms, an entrepreneur can choose whether they want flexible or fixed funding. Flexible funding means they get the money they raise no matter what.
From the investor’s POV, crowdfunding projects are a chance to be a part of the next big thing. Projects are usually rewards based, which means investors get the product first or get a gift as an exchange for backing the project.
Starting a Kickstarter crowdfunding page seems a lot easier than getting an angel investor to swoop in and help me start my business. Gosh I sound like SUCH a millennial right now.