Data from a report published by Massolution shows that the crowdfunding industry is expected to disburse more than $60 billion in 2016 to surpass VC funding for the first time. In 2010, only $880 million was raised via crowdfunding and this figure has been doubling annually since then. In comparison, the VC industry invests an average of $30 billion every year and this figure is unlikely to change much in the near future. Here is some more information on this topic:

Definition

Crowdfunding is a way of raising funds from a pool of many lenders rather than a single lender. A borrower pitches his/her crowdfunding idea/proposal to lenders and then each lender determines how much to invest. It is worth noting that almost all crowdfunding campaigns occur on industry or cause-specific online platforms. This is because online crowdfunding platforms are generally easily accessible and enable millions of potential funders to participate.

History

According to a Wikipedia entry, crowfunding has existed in more or less the same format for centuries. However, modern crowdfunding can be traced back to 1997 when the British rock group Marillion raised $60,000 via a fan-driven and web-based campaign. Since then, crowdfunding has grown into an industry that the World Bank estimates will disburse more than $90 billion in 2017.

Models

Crowdfunding is based on a wide range of financing models including equity, debt/lending, hybrid, royalty, donation, and rewards. Out of these, lending-style models are the most dominant with Massolution figures showing that this model accounted for 72.9% of all funds raised via crowdfunding in 2015 alone. In comparison, donation, reward, and equity-based models accounted for 8.3%, 7.8%, and 7.4% of crowdfunding financing respectively over the same period. This leaves hybrid and royalty among others as the least favorite crowdfunding models.

How Crowdfunding Companies Work

Crowdfunding companies provide the online platforms and money transfer infrastructure required to connect lenders and borrowers. In return, they retain a small percentage of the funds raised by each borrower. Some fundraising platforms deduct this facilitation fee irrespective of whether borrowers reach their fundraising goals or not, whereas others only do so only when borrowers reach their financing targets. Some of the most popular crowdfunding sites include Indiegogo, Kickstarter, GoFundMe, AngelList, Crowdfunder, Funding Circle, Kiva, LendInvest and Prosper Marketplace.

Fundraising Tips

1. Marketing campaign

Market your fundraising campaign aggressively on social networking sites and sites/forums that attract your target audience. Since there are usually numerous borrowers clamoring for the attention of funders at any one time, raising your web visibility is necessary.

2. Product/service proof-of-concept

Create a proof-of-concept video to assuage the concerns of risk-averse funders. Make sure your video shows a finished and working product. This will convince potential funders that you are not a con artist looking for easy money.

Conclusion

Crowdfunding is the act of raising financing from a pool of potential funders. Most modern crowdfunding campaigns are conducted online on platforms such as Indiegogo, GoFundMe, Kickstarter, AngelList, and Crowdfunder. Factors that increase likelihood of success include running an aggressive online marketing campaign backed by proof-of-concept video content.

If you would like to work with the leader in Crowdfunding innovation, then contact First Wave PR and we will get you started on the right track!

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