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How Crowdfunding Works

Crowdfunding is the use of small Dollar of capital from a large number of individuals to finance a new business venture. Crowdfunding makes use of the easy accessibility of vast networks of people through social media and crowdfunding websites to bring entrepreneurs together, with the potential to increase entrepreneurship by expanding the pool beyond the traditional circle of owners, relatives, and venture capitalists.

In most jurisdictions, restrictions apply to who can fund a new business and how much they are allowed to contribute. Similar to the restrictions on hedge funding these regulations are supposed to protect unsophisticated from putting too much of their savings at risk. Because so many new businesses fail, their face a high risk of losing their principal.

Advantages of Crowdfunding

• It can be a fast way to raise finance with no upfront fees
• Pitching a project or business through the online platform can be a valuable form of marketing and result in media attention
• Sharing your idea, you can often get feedback and expert guidance on how to improve it
• It is a good way to test the public's reaction to your product/idea - if people are keen to invest it is a good sign that the your idea could work well in the market
• Investors can track your progress - this may help you to promote your brand through their networks
• Ideas that may not appeal to conventional investors can often get financed more easily
• Your investors can often become your most loyal customers through the financing process
• It's an alternative finance option if you have struggled to get bank loans or traditional funding