What is Crowdfunding?
The pooling of the financial resources of many individuals to convert an idea into a project or business. Instead of relying on a few large donors, it requires many small ones. (DRESNER, 2014)
Crowdfunding utilises the internet and enables a project creator to present a single pitch that can instantly access and be assessed by users all over the world. The flow of information across the Internet means that exponentially larger numbers of potential donors and investors can be reached through platform providers (intermediaries).
With the ever growing use and reliance on social mediums such as Facebook and LinkedIn, the opportunity to spread the word far and wide effectively allows a project creator to access friends of friends and other related people who will be interested and passionate about their cause or business.
What are the different types of crowdfunding?
Rewards, donations, debt and equity are the main types of crowdfunding (see Figure below). The donation’s system laid the foundation for crowdfunding with the rewards based system emerging subsequently, with debt and equity the most recent evolution.
The Different Types of Crowdfunding
The two overarching type of crowdfunding are non-financial (reward and donation) and financial (debt and equity). This primarily dictates someone’s objectives for backing the project or business. For example, a well-known example of reward based crowdfunding was the Pebble Watch. With thousands of people backing the project in order to receive one of the first production runs of the watch, the campaign raised over $10m. In Peer-To-Peer (P2P) Lending an individual will loan money to another person or business and they will receive their money back with interest, receiving a financial return and in Equity Crowdfunding an investor will receive shares in the company raising money.
Hang on I think I have heard of something like this before!
You are right, we’ve been harnessing the internet for over a decade to knock down traditional borders and pool funds to help people. Kiva’s one of the first and most recognised organisations doing this, their mission is “to connect people through lending to alleviate poverty.” We can place much of the foundation of modern crowdfunding on Kiva, it started making in loans 2005 and has made $730m in loans over that time. The is no doubting that Kiva is powerful and has done a tremendous amount of good, with approx. 80% of loans made to women, it has been able to support and empower women all around the world!
Why is crowdfunding a powerful medium for women?
Recent research and statistics have shown women entrepreneurs are generally more successful in their campaigns. They are shown to be more energetic than men, receive more investors per campaign and a higher average donation value, raising 10.75% more money than male-run campaigns. Women are also noted to be able to grow their business faster after receiving funds and more conservatively. Furthermore, female entrepreneurs tend to have a greater advantage at engaging with their investors, as they are perceived to be better communicators, more emotive and trustworthy.
Crowdfunding is another example of where the world is today and how we can leverage technology to create efficient and effective outcomes whilst removing traditional barriers from the equation.
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