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Crowdfunding, the new way to raise funds?
A potato salad collecting USD 50 000, a card game with exploding kittens earning more than USD 8.7 millions: crowdfunding, which aims to fund a project or a venture by raising via the Internet small amounts of money from a large number of people, continues to inspire. To such a point that some people don't hesitate to launch a crowfunding campaign to finance their tuition, their case, their cosmetic surgery or their vacations!
Is crowdfunding really the new way to raise funds? The answer is no. The success stories mentioned above are the exception and not the rule. Moreover, it depends from one crowdfunding to another. There are four main types of crowdfunding; they don’t have the same growth and the same business volumes:
Donation-based crowdfunding
In this modern version of charity and sponsorship, donors get no tokens for their contribution. This model of crowdfunding aims to mobilise people around humanitarian or artistic projects. Sometimes, donors can have tax deduction.
Reward-based crowdfunding
In reward-based crowdfunding, contributors get a tangible item or service in return for their support of a project. This can be something small, like a thank you email or a T-shirt, or something much larger and personalised, like a personal invitation to the launch party, your name in the credits, a CD in limited edition, an autographed copy of the book or the product itself at a discount.
Equity-based crowdfunding
Equity crowdfunding is just what it sounds like – donors get shares in the company being funded. Small and medium businesses, and startups in particular, are using this kind of crowdfunding to raise quickly funds.
Lending-based crowdfunding
In lending-based crowdfunding, people can lend to businesses or individuals at a fixed rate based on the risk of the loan. Every month, investors have a fixed return in the form of interest.
Success not guaranteed
Even if they have the lowest business volumes, donation-based and reward-based crowdfunding remain the most popular because they are easy of access. Almost everyone can launch a crowdfunding campaign.
But ease of access doesn’t imply success. A crowdfunding campaign requires careful planning, skills and time. You have to make your project credible and convincing, find original rewards (in the case of a reward-based crowdfunding), contact the press and spread the word among your family, your friends, your relations and the online influencers. And you need a minimum of funds, if only to make your crowdfunding pitch video. A professional video will give more impact and effectiveness to your message than a homemade video.
In conclusion, a lot of work and a bit of money with no guarantee of success. The crowdfunding projects are not equal and some are more popular than others. Launching a new technology will be more crowdfundable than saving a symphonic orchestra. The scope of your project is also a deciding factor for the success of your campaign. If you are only targeting Luxembourg or the Greater Region, don’t expect to collect hundreds of thousands euros in two months (average length of donation-based and reward-based crowdfunding campaigns). To increase your chances of success, stay realistic and motivated. Whatever the type of crowdfunding you choose, motivation will lead you to success, not love of money.
11/2021
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