Crowdfunding is when individuals or start-ups use an online platform to gain funding for a project

Crowdfunding makes use of the easy accessibility of vast networks of people

through social media and crowdfunding websites to bring investors and
entrepreneurs together, with the potential to increase entrepreneurship by
expanding the pool of investors beyond the traditional circle of owners,
relatives and venture capitalists.
Crowdfunding provides a forum to anyone with an idea to pitch it in front of
waiting investors.
Crowdfunding sites generate revenue from a percentage of the funds raised.
There are four types of crowdfunding sites

Debt Based Site: Contributors receive interest payments in exchange for their contributions.
Examples – Funded here, crowdo and moolah cents

Equity based sites: Contributors receive shares in exchange for their contributions. Examples- Angel
list, Funnel, Seeders, and Cap bridge

Reward Based Platforms : Contributors are promised rewards in exchange for their support like first
priority access to the product once it goes live. Examples- Kickstarter, Indigogo and eulalee.

Donations based platforms where donations are charitable and usually tax deductible examples-
Indigogo, pateron, u caring and friend fund.

Crowdfunding websites have to invest heavily in their platforms upfront and slowly build up scale,
so before investing in a crowdfunding platform, its important to consider it’s stage of growth

In the early stage the main focus should be on customer traction, one can gauge this by the amount
of momentum being build among project initiators and investors therefore the key valuation metrics
include Valuation divide by No. of Campaigns, Valuation divide by Successful Campaigns, Valuation
divide by Funds raised

In the growth stage, the aim is to prove the revenue model and to scale up as rapidly as possible,
therefore the key valuation metrics include Valuation divide by Funding value, Valuation divide by
revenue.

Finally, in the late stage the goal is to maximize profitability and cash flow, while maintaining growth,
therefore the key valuation metrics include Valuation divide by revenue, Valuation divide by EBITDA
and the P/E Ratios.

Real World Examples of Successful Crowdfunding

Ventures

For instance, Oculus VR, the American company specializing in virtual

reality hardware and software products, was funded through the site. In 2012,
founder Palmer Luckey launched a Kickstarter campaign to raise money to
make virtual reality headsets designed for video gaming available to
developers. The campaign crowdfunded $2.4 million, ten times the original
goal of $250,000. In March 2014, Facebook, Inc. (FB) acquired Oculus VR for
$2.3 billion in cash and stock.

Before you get too excited at the idea of “free money,” there are some drawbacks of
crowdfunding that you should consider as well. 

 Crowdfunding campaigns typically require a lot of work on the business

owner’s side (that’s you). You’ll have to convince people to contribute to your
business idea. You will likely need to offer them something in return (e.g. a pre-sale, a
free product, elite status, etc.). And, you’ll have to keep the momentum going
throughout the campaign. Many business owners report that it can be a very time-
consuming process. 
 If you don’t reach your financing goal, with certain crowdfunding platforms you
might not get any of the funds you did raise. 

Nonetheless, crowdfunding has been a very successful way for many businesses to
raise much needed working capital. If you’re looking for specific crowdfunding
options, this helpful guide might be a good place to start your research.