Crowdfunding: What It Is and How it Works?

Until recently, raising funds to start a startup, business, company, or project was not easy due to limited financing options. These resulted in loans disbursed by banks, resulting in very high debt and interest rates, thus draining the savings of potential entrepreneurs. However, the 21st century has brought with it a completely innovative method of financing: Crowdfunding.

What Is Crowdfunding?

Crowdfunding is an innovative form of financing that offers the possibility to raise funds for multiple uses “through the crowd.” It is a model that involves the involvement of different subjects who choose to invest in a cause, an idea, or a project to provide them with the necessary financial support to become self-sufficient.

This new form of financing represents one of the main sources of income for startups. Crowdfunding can be done privately, by an individual, or it can be a public invitation to raise funds from the government. One of the best options available is sukuk crowdfunding, which is sharia-compliant and an ideal option for the Muslim community.

How Does Crowdfunding Work?

As seen so far, Crowdfunding, thanks to technology, is just a click away. Nowadays, several online platforms connect investors with potential individuals or startups in need of alternative financing. Let’s now analyze the two faces of Crowdfunding: the advantages and disadvantages.

Advantages of Crowdfunding

Crowdfunding is a (relatively) simple way, but neither traditional nor conventional, to raise funds at no associated cost. Banks, commercial or investment, are often reluctant to finance startups due to the financial risks they entail.

If exploited correctly and intelligently, Crowdfunding can serve as a marketing tool. Since investors choose to support a specific project and their capital is at stake, they are very likely to advertise the product, albeit not directly. Their only goal is for the business to be profitable.

Disadvantages of Crowdfunding

Like everything, Crowdfunding also has its drawbacks. The main one is not getting a space on a Crowdfunding platform to get your project off the ground. Yes, even if one must not run into bureaucratic-legal matters in the world of Crowdfunding, one must instead face the growing competition and increase of startups.

Secondly, Crowdfunding platforms impose a time limit for raising funds. If you fail to raise funds within the allotted time, all money raised will be returned to the investors. Furthermore, as investors will finance most of the project, there is a risk of not being autonomous in decisions as initially expected.

How to Make Your Crowdfunding Campaign a Success?

In Crowdfunding, you must be able to raise the required funds in the time you have available. However, it becomes impossible to do this if you don’t play your cards right. Therefore, keep the following tips in mind when starting your Crowdfunding campaign.

  • Always Remember Your Goal: When you have a clear and defined goal, it’s hard to go astray.
  • Work with people on the same line of thought: to make a dream come true, teamwork is needed. Work with a creative and hardworking team who understand your vision and work with you to achieve the goal.
  • Make sure your product is unique: this advice may seem trivial, but an idea or a unique feature in your product or service can make and be the difference; acts as an attraction for investors and is a testament to the fact that you take your project seriously and that you have something new to offer that your competitors don’t have.
  • Research: Conduct in-depth research on your potential market. You need to be aware of the product niche, competition, market price, market leaders, etc. Any little information is of great use.
  • Use social media to your advantage: Social media is an excellent tool for connecting people. Share your Crowdfunding page on your social media profiles and ask your friends to do the same. The higher the visibility of your page, the more likely you are to get funding.

Finally, don’t lose hope and keep trying!