Why Successful Crowdfunding Requires a Social-

Media Mind-Set

Q.1 What is Crowdfunding?

Crowdfunding is a way to raise funds for a specific cause or project by asking a large number
of people to donate money, usually in small amounts, and usually during a relatively short
period of time, such as a few months. Crowdfunding is done online, often with social
networks, which make it easy for supporters to share a cause or project cause with their
social networks. Organizations, businesses and individuals alike can use crowdfunding for
any type of project. for example: charitable cause, creative project, business start-up, school
tuition or personal expenses.

Q.2How Crowdfunding Works?

In most jurisdictions, restrictions apply to who can fund a new business and how much they
are allowed to contribute. Similar to the restrictions on hedge fund investing, these
regulations are supposed to protect unsophisticated or non-wealthy investors from putting
too much of their savings at risk. Because so many new businesses fail, their investors face a
high risk of losing their principal.
Crowdfunding has created the opportunity for entrepreneurs to raise hundreds of thousands
or millions of dollars from anyone with money to invest. Crowdfunding provides a forum to
anyone with an idea to pitch it in front of waiting investors. One of the more amusing
projects to receive funding was from an individual who wanted to create a new potato salad
recipe. His fundraising goal was $10, but he raised more than $55,000 from 6,911 backers.
Investors can select from hundreds of projects and invest as little as $10. Crowdfunding sites
generate revenue from a percentage of the funds raised.

Q.3Website of Crowdfunding?
There are some websites are given below.
1. Seedout
Seed Out is a not-for-profit crowdfunding platform which is working to alleviate poverty by
establishing micro entrepreneurs through interest free micro financing.
2. Kickstarter
Kickstarter is a website where people can raise funds for their projects. You create a project
page and then start seeking donations from friends, family, and complete strangers. If you
reach your funding goal, you get paid and the donors receive rewards.
3. Indiegogo
Indiegogo is similar to Kickstarter except they don't require a minimum amount per person.
Instead, you have to set a maximum dollar amount. Donors who give $10 or more get credit
towards rewards.
4. GoFundMe
GoFundMe is a site where you can seek money for anything. From paying off medical bills to
helping fund a business venture, you can find a campaign on GoFundMe to help you out.
5. RocketHub
RocketHub is a site that lets you raise money for any type of project. You can even use the
site to crowdfund your own personal project.
6. Patreon
Patreon is a platform where artists can make regular income from their fans. You can
become a patron of an artist's work and gain access to exclusive content and perks.
7. Pozible
Pozible is a site that helps musicians and creative types raise funds for their projects and
campaigns. You can choose between donating monthly, once, or at random.
8. SeedInvest
SeedInvest is a site that connects investors with entrepreneurs looking to fund their startup.
You can browse start-ups based on industry, location, stage, or other criteria.

Q.4Types of crowdfunding.
There are four main types of crowdfunding, including donation, reward, equity, and debt
crowdfunding options. Review each type of campaign below.

 Donation crowdfunding
Donation crowdfunding is a type of campaign where there is no financial return to investors
or contributors. Individuals give donations to fund a specific idea or cause. Common
donation-based crowdfunding initiatives include raising money for charities, non-profits, or
disaster relief efforts. For example, a company might give charitable business donations to
help raise money.

 Reward crowdfunding
Reward crowdfunding involves individuals contributing to a business in exchange for a type
of reward or incentive. Usually, the reward consists of something relating to the product or
service your business offers.
Reward-based crowdfunding works best for companies offering goods and other tangible
products. And, it can be beneficial to start-ups looking for a test market for their product or
service.

 Equity crowdfunding
Equity crowdfunding offers individuals real investments in private companies. Contributors
can become part-owners of your business by trading capital for equity shares. Essentially,
equity crowdfunding allows you to sell off a piece of ownership to a contributor.
Your contributors receive a financial return on investment and share of profits in the form of
a distribution or dividend. Equity-based crowdfunding campaigns are popular with
entrepreneurs and start-ups looking for an alternative to venture capital efforts.

 Debt crowdfunding
In debt-based crowdfunding, the individual running the campaign borrows money from
contributors. Individuals agree to lend money to a company. In return, businesses agree to
repay lenders.
Typically, business owners set time frames for how long it will take to pay back contributors
and include interest rates when repaying them. Entrepreneurs who don’t want to give up
equity in their company might seek help from debt crowdfunding instead

Q.5Is Crowdfunding legal?

In the United States, all regulated crowdfunding transactions must take place online through
an SEC-registered intermediary, either a broker-dealer or a funding portal. To invest, a
potential investor must open an account with a crowdfunding intermediary—a broker-dealer
or funding portal.
It is further clarified that crowd funding is not allowed in Pakistan and no company can raise
funds through this scheme.

Q.6Platforms of crowdfunding?
Whether you are an entrepreneur, an artist, or a climate change advocate, these platforms
will help you get the funds you need for your project, idea, or cause.
There are some Best Crowdfunding Platforms:
Best Overall: Indiegogo
Best for Start-ups: SeedInvest Technology
Best for Non-profits: Mightycause
Best for Investing: StartEngine
Best for Individuals: GoFundMe
Best for Creative Professionals: Patreon

Q.7Advantages and Disadvantages of Crowdfunding.

The most obvious advantage of crowdfunding for a start-up company or individual is its
ability to provide access to a larger and more diverse group of investors/supporters. With the
ubiquity of social media, crowdfunding platforms are an incredible way for businesses and
individuals to both grow their audience and receive the funding they need.
Furthermore, many crowdfunding projects are rewards-based; investors may get to
participate in the launch of a new product or receive a gift for their investment. For instance,
the maker of a new soap made out of bacon fat may send a free bar to each of its investors.
Video games are a popular crowdfunding investment for gamers, who often receive advance
copies of the game as a reward.
Equity-based crowdfunding is growing in popularity because it allows start-up companies to
raise money without giving up control to venture capital investors. In some cases, it also
offers investors the opportunity to earn an equity position in the venture. In the United
States, the Securities and Exchange Commission (SEC) regulates equity-based
crowdfunding.
Potential disadvantages of crowdfunding include the possible damage to you or your
company's reputation caused by "resorting" to crowdfunding, the fees associated with the
crowdfunding site, and, at least on some platforms, if you don't reach your funding goal, any
finance that has been pledged will be returned to your investors and you will receive nothing.
Access to funding you otherwise might not qualify for from traditional sources
• Great way to interact with potential consumers
• Ability to gauge public opinion on your product
Must follow the rules/fees of the crowdfunding platform
• In some cases, if you don't reach your funding goal, any finance that has been pledged
will be returned to your investors
• Possible damage to your start-up company's reputation

Q.8How you can start your own crowdfunding?

There are Four steps to start your own crowdfunding campaign.
Got a project you need funds for?
Or a plan to expand your business?
Perhaps it’s time to turn that taco truck into a fleet of trucks.
1. Select your platform:
Start by choosing between a rewards or equity-based platform. Find out how long the
different platforms allow campaigns to run. That can be important. What’s the limit
on how much you can raise? And find out who will see it. Certain platforms might
attract different types of backers.

2. Get accepted by the platform:

Fill in the online forms and provide any documentation they need. The platforms
need to check you’re legitimate. An offer document or prospectus may be required if
you’re looking to use an equity Crowdfunder. This sets out the details of the
investment, any prescribed risk warnings, and cooling-off periods for investors.

3. Make your pitch:

Once accepted by the platform, you have a place to make your pitch. Describe your
project or idea, why you want funds, and how much you’re hoping to raise. If it’s a
rewards-based platform, list what backers will get. For an equity-based platform
you’ll need to state what the equity stake is and the share price – if it can be
determined. The pitch phase can require a lot of work. It’s a full-on marketing
campaign to promote your project or business and make it attractive to investors.
And it may involve frequent updates to keep the interest going. Your business needs
to use its customers and fans on social media channels to get the word out. With an
equity crowdfunding campaign, you’ll need to share your business and financial
information with complete strangers. That includes up-to-date company information,
financial statements and forecasts, a credible business plan, and – if you’re an
existing business – a realistic valuation.

4. Campaign end:
With some social crowdfunding platforms, you get all the donations raised during
the campaign. With others, you have to set a target and only get the cash if you reach
it. With equity crowdfunding, you’re given a time frame to attract investors. If you’re
successful, the platform arranges the payment of the funds to you and issues share
certificates or convertible notes to the investors. If you don’t attract investors, you
may be able to extend the deadline. These platforms make their money through fees
– for instance a percentage of the amount raised plus transaction fees. Some also take
equity. Some won’t charge a fee unless you’re successful. They’re doing a lot of the
administration and, in the case of equity platforms, they’re handling the legal
compliance that can be complex to do on your own.

Q.9Examples of Crowdfunding:
Many of the products and businesses crowdfunded on Kickstarter became very
successful and lucrative endeavors. For instance, Oculus VR, an American company
specializing in virtual reality hardware and software products, was funded through
the site. In 2012, founder Palmer Luckey launched a Kickstarter campaign to raise
money to make virtual reality headsets designed for video gaming available to
developers. The campaign crowdfunded $2.4 million, ten times the original goal of
$250,000.
In March 2014, Facebook, now Meta (META), acquired Oculus VR for $2.3 billion in
cash and stock.
Another example of a company that rose to success through the help of Kickstarter
campaigns is M3D, a company founded by two friends that manufacture small 3D
printers. David Jones and Michael Armani raised $3.4 million for their Micro 3D
printer on the crowdfunding site in 2014.
The tiny 3D printer, which comes with a variety of durable 3D inks, is now available
at Staples, [Link], Inc. (AMZN), Brookstone, and elsewhere.
In April 2019, Critical Role, a weekly live-streamed tabletop roleplaying game
featuring a group of prominent voice actors, raised $4.7 million in just 24 hours for
its latest animated special “The Legend of Vox Machina.” No other 2019 Kickstarter
campaign raised that amount over their entire 30- to 60-day raising period.

BBA 7th eve-B

Mahrukh
Roll No. 9598