|Crowdfunding is the action of an individual asking people to help fund a business idea. In previous years, people had to ask a few people to help fund a business, by donating a sum of money. Crowdfunding is basically the same idea, the difference is that the transactions happen over the internet and more people help to fund you, but they pay smaller amounts of money.
|There are different types of crowdfunding:
- Donation crowdfunding: in this type of crowdfunding people donate money, mostly because they believe your idea could make a change. They do not want something in return.
- Debt crowdfunding: With this type of crowdfunding the debtors receive their money back with interest.
- Equity crowdfunding: With this type of investing the investors exchange their money for a share in the business/project.
|There are also risks concerning crowdfunding, because there is no guarantee that the investors will receive their money back, or that the business/project will be successful. Even though you own a share of the business, dividends are rare and could be diluted if more shares are issued. In some investments in can be impossible to receive back the money you invested (Andrew, 2013).