Crowdfunding

Crowdfunding is a relatively new way of funding projects and ventures. It works by gaining investments from a large number of people, and falls into four types: reward-based, donation-based, equity-based and credit-based. Crowdfunding has been used to fund a large variety of projects including computer games, inventions, films and albums. The most successful crowdfunded projects are Star Citizen, an as-yet unreleased online video game, and the Pebble Smart Watch.

There are a large number of crowdfunding websites that host crowdfunding, including Kickstarter, Indiegogo, Gofundme, CrowdCube and Seedups. There are two methods used on these sites for gaining funds – Keep it all (KIA) and All or Nothing (AON). With KIA, the individual or organisation seeking funding keeps all of the investments regardless of whether they reach their target. With AON, the creator must reach their goal in order to be funded.

Reward-based crowdfunding works by rewarding investors with a product or service. For example, if you invest in a new kind of fish tank, then you receive one of these fish tanks in return for your investment, or some other non-monetary reward. An example of this is the Pebble Smart Watch which was funded using reward-based crowdfunding.

Donation-based crowdfunding seeks donations to a charitable cause, for example your donation to a homelessness crowdfund would pay for accommodation for homeless people.

In Equity-based crowdfunding, the investors receive a stake in the business, much like stockholders. This form of investment leads to increased returns for the increased success of the business. This type of funding is the only form offered by CrowdCube.

Credit-based or lending-based crowdfunding means that investors are repaid for their investment monetarily over time. Sites like Kiva.org (A microfinance site) use credit-based crowdfunding. Kiva allows lenders to loan to small businesses in less economically developed countries. The site encourages economic development and lends to small business ventures without an interest rate, meaning that these small businesses can be funded. It provides loans to those who would not otherwise receive funding and without having to borrow from banks with high interest rates.

Some high-profile crowdfunds include the force field umbrella, the potato salad, and Star Citizen. Famously, the potato salad received over $55,000 in funds. In more recent news, the force field umbrella has received considerable amounts in funding. The highest grossing crowdfund so far is Star Citizen, a space trading and combat simulator with mass-online use capabilities.

It seems crowdfunding is bringing success to all sorts of fields, from the Eden Project to a chicken burrito, from new films to new albums to university fees. So if you have an innovative project that needs to be funded, head over to a crowdfunding site. And if you’re looking for something worthwhile to invest in, you can see what looks profitable. Or you could just invest in a potato salad. Your choice.