The term crowdfunding it is not part of the dictionary that elaborates the Royal Spanish Academy (RAE ). The notion refers to a financing mechanism which consists of the contribution of small amounts of money by many people .
Crowdfunding, therefore, is also known as micromanagement . It is a collective financing , where an entrepreneur receives limited support (in financial terms) from numerous investors.
Usually crowdfunding is developed through Internet . Who is interested in receiving funding disseminates their project, setting a goal to achieve and requesting support. Suppose a musician needs 2000 pesos to record a record. Through crowdfunding, twenty of his followers could contribute 100 pesos each and thus raise the necessary money. The musician, as a reward, undertakes to give an autographed record to each investor and to provide a private concert for all of them.
Those who contribute money through crowdfunding they usually do it in exchange for some kind of prize or benefit , although it can also be a solidarity decision to support a cause. With this methodology, it is not usual for the investor to seek to recover the money with interests .
It is possible to list several advantages of crowdfunding compared to others systems of financing. The most notary is that the contribution does not fall on a single person, but on many, a particularity that allows reducing the amount of money to be disbursed. Another point in favor is that it allows access to financing for projects that, for various reasons, fail to enter the traditional financial system (banks).
In most cases, the person or company that presents a draft In a crowdfunding platform it offers its potential investors a very detailed list of the benefits or rewards that they will obtain in exchange for the various possible amounts. For example, in the case of video game developers, it is common that from the smallest investments one of the rewards is a digital copy of the product, generally at a considerably lower price than it will have in the market once it is launched.
As the amount of money offered by investors increases, the rewards from a crowdfunding campaign they can become very interesting. One of the most common practices is to invite the people who have contributed the most to visit the company's facilities in a private meeting.
Crowdfunding not only It allows people with great ideas to fulfill their dreams without having the financial means , but also opens the doors to massive collaborations between creators and investors. Taking up the case of video games, the type of project that has the most success on these platforms, it is not uncommon for developers to open forums where investors can contribute their own ideas and evaluate the product while it is in full developing .
This brings us to one of the biggest risks of crowdfunding: the loss of control about the project. Since any person can start a campaign of this type, regardless of whether they have previous experience in the performance of their profession or in the creation of a similar proposal, it is very common that soon after the fundraising process is over the structure begins to decline and the future becomes less promising.
When a Bell Crowdfunding starts well, with the support of many people and a favorable collection rate, it is often the case that the organizers get too excited and start making more and more promises, many of which they can never keep. In some cases, the confusion leads to radical changes in the project, which leave an important part of the investors without reward.