Crowdfunding

Unit 18
What Is
Crowdfunding?
Crowdfunding is the use of small amounts of
capital from a large number of individuals to
finance a new business venture. 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.
How does
crowdfunding work?
Crowdfunding platforms are websites that enable interaction between fundraisers and the
crowd. Financial pledges can be made and collected through the crowdfunding platform.
Fundraisers are usually charged a fee by crowdfunding platforms if the fundraising
campaign has been successful. In return, crowdfunding platforms are expected to
provide a secure and easy to use service.
Many platforms operate an all-or-nothing funding model. This means that if you reach your
target you get the money and if you don’t, everybody gets their money back – no hard
feelings and no financial loss.
There are a number of crowdfunding types which are explained below. This guide provides
unbiased advice to help you understand the three most common types of crowdfunding
used by profit-making SMEs and startups: peer-to-peer, equity and rewards
crowdfunding.
 Main types of crowdfunding
Peer-to-peer lending

The crowd lends money to a company with the understanding that the money will be repaid with interest. It is very similar
to traditional borrowing from a bank, except that you borrow from lots of investors.

Equity crowdfunding

Sale of a stake in a business to a number of investors in return for investment. The idea is similar to how common stock is
bought or sold on a stock exchange, or to a venture capital.

Rewards-based crowdfunding

Individuals donate to a project or business with expectations of receiving in return a non-financial reward, such as goods
or services, at a later stage in exchange of their contribution.

Donation-based crowdfunding

Individuals donate small amounts to meet the larger funding aim of a specific charitable project while receiving no financial
or material return.

Profit-sharing / revenue-sharing

Businesses can share future profits or revenues with the crowd in return for funding now.

Debt-securities crowdfunding

Individuals invest in a debt security issued by the company, such as a bond.

Hybrid models

Offer businesses the opportunity to combine elements of more than one crowdfunding type.
How Crowdfunding is
Revolutionizing CSR

Crowdfunding is a powerful tool for social impact

because it allows individuals and organizations
to raise funds from a large number of people for
social and environmental causes. This
democratizes philanthropy and allows anyone to
contribute to social impact initiatives, regardless
of their financial capacity. Crowdfunding also
provides a platform for social entrepreneurs and
innovators to test and scale their ideas without
relying on traditional sources of funding.
Benefits of
Crowdfunding for CSR

• 1. Increased Funding: Crowdfunding can help companies to

raise more funds for their CSR initiatives than traditional
fundraising methods. Crowdfunding platforms have a wide
reach and can attract donors from all over the world, which can
increase the amount of funding available for CSR activities.
• 2. Brand Visibility: Crowdfunding campaigns can help
companies to build their brand and increase their visibility by
promoting their CSR initiatives to a wider audience. This can
improve the company’s reputation and increase customer
loyalty, as well as attract new customers and stakeholders.
• 3. Engagement with Stakeholders: Crowdfunding can
provide a platform for companies to engage with their
stakeholders, including customers, employees, and suppliers,
to build relationships and demonstrate their products and
innovations.
Benefits of Crowd
funding
• 4. Greater engagement: Crowdfunding allows companies to engage
with their stakeholders directly and involve them in their CSR initiatives.
This creates a sense of ownership and responsibility among the
community, making them more invested in the success of the project.
• 5. Cost-effective: Crowdfunding is a cost-effective way to raise funds
for CSR initiatives, as it eliminates the need for expensive marketing
campaigns and fundraising events.
• 6. Increased transparency: Crowdfunding provides transparency in
terms of how the funds are being used and the progress of the project.
This can help build trust with stakeholders, as they can see the impact
of their contributions.
• 7. Innovation: Crowdfunding allows companies to experiment with new
ideas and innovative solutions for CSR projects. This can lead to the
development of new products or services that can benefit society as a
whole.
The Future of CSR
and Crowdfunding
• Democratizes Philanthropy: Crowdfunding enables individuals and
communities to fund social projects that they believe in, regardless of
their socioeconomic status. This democratizes philanthropy and
makes it accessible to a broader audience.
• Increases Transparency and Accountability: Crowdfunding
platforms provide transparency and accountability by allowing donors
to track their contributions and monitor the progress of the project.
This encourages accountability from the project organizers and
ensures that funds are being used effectively and responsibly.
• Drives Innovation and Creativity: Crowdfunding incentivizes
innovation and creativity by encouraging entrepreneurs and social
innovators to think outside the box and come up with unique
solutions to social problems. This can lead to the creation of new
products, services, and business models that address societal needs
in novel ways.
The future of CSR
and Crowdfunding
• Builds Brand Awareness and
Reputation: Crowdfunding campaigns can help
companies build their brand awareness and reputation by
demonstrating their commitment to social responsibility.
By engaging with their customers and communities in this
way, companies can strengthen their relationships and
build a loyal customer base.
• Provides Access to New Markets: Crowdfunding can
provide access to new markets by allowing companies to
test the viability of new products or services before
investing significant resources in them. This can help
companies to expand into new markets and reach new
customers while mitigating risk.
Popular Crowdfunding
platforms
1. GoFundMe
GoFundMe is the largest crowdfunding platform. Since GoFundMe was founded in
2010, the site has raised over $25 billion through more than 200 million
donors.3 GoFundMe is the site most popular for individuals seeking to recover from
a medical expense or disaster such as a house fire, natural disaster, or unexpected
emergency expense. Start-up companies tend to use Kickstarter.

2. Indiegogo
Indiegogo started as a crowdfunding site initially focused exclusively on raising
money for independent films but began accepting projects from any category a year
after its launch in 2008.6
Indiegogo is seen as a less strict and more flexible platform than Kickstarter, as it
gives backers control over whether they want fixed or flexible models—this is
probably the most significant difference between the two crowdfunding platforms.
Kickstarter releases funds only after the campaign has reached its funding goal,
whereas Indiegogo allows the campaigner to receive funding pro-rata, or wait until
their target is hit.
Popular Crowdfunding
platforms
3. Kickstarter
Kickstarter is another popular choice. Founded in 2009, the platform has
successfully funded almost 250,000 projects, with more than $7.6 billion pledged
across all Kickstarter projects.
Kickstarter is the most popular crowdfunding site for aspiring businesses hoping
to raise capital and reach a larger audience. In fact, unlike GoFundMe, Kickstarter
can only be used for creating projects that can be shared with others.
Additionally, Kickstarter cannot be used to raise funds to donate to a charity or
cause, projects can't offer incentives like equity, revenue sharing, or investment
opportunities, nor can any project involve the site's list of prohibited items such
as "any item claiming to diagnose, cure, treat, or prevent an illness or condition,"
political fundraising, drugs or alcohol, or any contests, coupons, gambling, and
raffles.