What is Crowdfunding?

In the world of online finance, there are two types of crowdfunding. The first is donation funding where people with personal causes request financial help. The second is business startup funding. In this situation, entrepreneurs use crowdfunding to seek investors. The donor receives a percentage of the company, or a crowdfunding reward, or gift with the company logo. In recent years, a large amount of money has changed hands through crowdfunding.

As of the last quarter of 2014, funding seekers collected nearly $5.1 billion through crowdfunding campaigns. The Jumpstart Our Business Startups (JOBS) act that passed in 2012 has helped this industry grow exponentially since its inception. With this act, potential business owners don't have to go through SEC paperwork and registration to raise up to $1 million a year.

Those with business ideas or those who own established businesses use crowdfunding by signing up at one of hundreds of websites to make their pitch. They share their story and their vision. They let investors or donors know what their monetary goal is and how they plan to use the funds. They also detail what the investor can expect in return for their investment. Once the donor places funds in the account, the requester mails them their crowdfunding reward or reaches out to them to work out the details about their percentage of the business.

When entrepreneurs use crowdfunding, they have the ability to create jobs. In fact, the estimate is that for every $37,702 invested through crowdfunding, entrepreneurs create one new job. At that rate, two million new jobs are possible by the year 2020.

The ability to use crowdfunding has spread around the world. However, each country has its own rules and regulations concerning how these websites can operate. Even though crowdfunding is a widespread method of raising capital, there is very little fraud. In fact, only four cases of possible fraud have been reported. One such case in Washington occurred because the donors didn't receive their gift, so restitution was sought.

Investors love to use crowdfunding to invest because it allows them to find people to invest in as well as some wonderful ideas and businesses. As more investors learn about crowdfunding, the more time they spend on these sites looking for people to offer their money to. Those looking for donations frequently promote their crowdfunding pages on social media. Additionally, crowdfunding sites promote members' campaigns as well as providing additional exposure to potential investors.

Crowdfunding works because investors feel connected to those hoping to pay their medical expenses, fund their athletic dreams, and those looking to start their own business. This connection comes from the stories told as a part of the pitch by those that use crowdfunding. In many cases, the fund seekers can realize their goals within a very short amount of time.

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