Crowdfunding refers to the practice of funding a project by raising money from a large group of people. It is relevant for a particular cause. It is a way of raising capital using the internet or social networking like Facebook or Twitter or by using some crowdfunding-dedicated websites. It helps to improve the presence of small businesses and startups in social media, increases their investment base, and funding prospects.
Modern crowdfunding model is generally based on three types of actors: the project initiator who proposes the idea, individuals or groups who support the idea, and a platform that brings the parties together to launch the idea.
Benefits of crowd funding
- With crowdfunding, there is no formal banking system and hence no tedious procedure required. It is efficient and consumes less time.
- It enhances the productivity of innovation and entrepreneurship.
- It has various applications like it is being explored as a potential funding mechanism for creative work such as blogging and journalism, music, independent film, for funding startup companies etc.
- It is a way to give back to society. It allows creators to attain low-cost capital. A greater publicity, stronger customer base, and an easier time finding employees is the result of crowdfunding. Allow people to donate or invest in food- and agriculture-related opportunities.
- It is risky for the new small-scale investors and entrepreneurs and hence they often fail in their novice ventures. Reputation is damaged if there is a failure to meet goals and targets or to generate interest which results in a public failure.
- Intellectual Property (IP) protection can be an issue as creators who engage in crowdfunding are required to release their product to the public in early stages of funding which exposes them to the risk of copy by competitors.
- There is a risk that if the same network of supporters is reached out to multiple times, that network will eventually cease to supply necessary support and hence all the effort would go in vain in the end. Since
- it is without a regulatory framework there is a fear of public misuse. Since it is not formal banking system, chances of fraud and money laundering are high here.
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