Crowdfunding: what is it and how does It work?

You have probably already heard about crowdfunding, especially if you are in the investing world, but do you really know what is and how it works? Probably not, that’s why we are going to explain it to you below.

What is it?

Crowdfunding is a type of collective collaboration system in which you do not need a bank or ask for a loan to get investment for your entrepreneurship. It consists in showing your project to several people that may like the proposal and, if they believe it´s a promising project, they will invest.

Equity crowdfunding

It consists in a having several people investing in a project they like and as a result, they become partners of it.

More than one investor

Initially, this investment is characterized by the fact that there is not one unique“ investor in the project, but several are needed to carry it out. Each of the investors will enter a minimum amount for the project, so their risks will be much lower than if they decide to make another type of investment.

Online

One of the comforts equity crowdfunding has is that it works online. Entrepreneurs show their projects for free and investors see them online. Because of this, it would not mean an extra cost for entrepreneurs

Advertising and social networks

Surely, as soon as you wake up the first thing you do is pick up your mobile and peek into your social networks, isn’t that right? Social networks are a good way to transmit ideas and thoughts, but also to advertise projects for free.

How does crowdfunding work?

Equity crowdfunding works in a really easy way:

  1. The entrepreneur will open a round of financing, where he will display his project on a platform and show all the financial information from costs to benefits. The project can be in any phase of maturity.
  2. The platform will analyze if the project is viable or not. In order to do this, it will make an internal study of the type of business it is.
  3. Once accepted, the project will be launched in a campaign so that the investors can make their bets on that project. At this stage, investors will be informed of all the details, from the possible profits to the possible risks. All information must be extremely clear when it comes to investing.
  4. After all this occurs, the only thing left to do is wait until the investment round achieves its goal in order to be able to start the project and start making profits as soon as possible.

As you may see, this investment method is quite easy and beneficial for all sides, because investors have direct communication with the entrepreneurs, which means they have updated information constantly.

Without any doubt, equity crowdfunding is one of the best investment methods of the 21st century. Do you want to join us at Fellow Funders?

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