Crowdfunding is a way to gain access to finance by seeking investment or pledges from a variety of many different people and/or businesses. This method of raising finance can also be often be referred to as either ‘crowd financing’ or ‘equity crowdfunding’
This way of seeking access to finance is different to what some people may get confused with another alternative route to finance as being one in the same, namely peer to peer lending.
For businesses, crowdfunding is a way for them to try and access the finance they need by raising the investment and/or business finance by tapping into a ‘crowd’ of like – minded investors.
Those like – minded investors who are willing to invest via the crowdfunding financing model, do so with relatively small amounts of cash being pledged in exchange for a stake the business.
The matching up of investors to the companies looking for investment is done via an internet-based crowdfunding platform and because of automated technology crowdfunding can be a relatively quick process, and a quick route to finance
Different types of Crowdfunding
There are a growing number of online platforms which use the crowdfunding finance model to help businesses gain access to finance. Such platforms can often be bespoke in who or what they target – such as only offering crowdfunding for technology businesses, or design businesses.
There are some crowdfunding platforms which purely serve a social aspect and often in these cases no equity is sort in return for amounts being pledged., they are perhaps seen more a donations for a common cause.
So, crowdfunding does mean that businesses looking for a business finance have to part with some equity.