Crowdfunding is the process of sourcing multiple investors or donators to provide funding for an idea or product. Instead of a classic investment model, where traditional investors, like a production company, or bank, would front the cash, crowdfunding allows anyone to contribute money towards a campaign or idea.
These backers will often receive a reward scaled by their level of contribution – as well as the ability to see the concept that inspired them to part with their money become a reality.
One of the most famous recent examples of crowdfunding success in the UK is Kano, an easy-to-use computing tool created to teach children how to code. Kano’s innovative kit proved immensely popular on the crowdfunding platform Kickstarter, raising more than £1.2 million over its lifespan.
If the possibilities of crowdfunding have you excited about a project or idea you’d like to achieve, the below infographic illustrates everything you need to know:
What Are the Different Types of Crowdfunding Model?
Typically, crowdfunding is divided into four models:
- Donating – users donate money in response to a good deed or for an event, for example, raising funds for someone who is running a marathon for a charity.
- Sponsorship – backers sponsor an idea, product, or service. Backers will often receive the finished product if the campaign is successful.
- Investing – investment in a start-up or small business, with rewards scaled on its success.
- Lending – commonly used by small businesses to achieve peer-to-peer loans, circumventing the typical bank loan system. Lenders earn interest on their initial investment.
There are several major crowdfunding websites out there, each offering different rates and levels of service. Kickstarter, Patreon, and Indiegogo top the list for the most popular crowdfunding platforms, while JustGiving is the favoured service for fundraising towards good causes.
We spoke to Mike Rudd, CEO of crowdfunding specialists Trident Design, who explained his personal views on the benefits of this new method of investing: “Crowdfunding is an incredible opportunity in the path to market for launching a product. It has helped us, our clients, and thousands of others to launch products powerfully into the marketplace. However, remember it is called Kickstarter, not Kickretire!”
Have you encountered any interesting crowdfunding campaigns? Let us know on Twitter at @viking_chat.