Crowdfunding and crowdinvesting on the business market of XXI century.

More often you can read news about one or another crowdfunding project raised hundreds of thousands or even millions dollars. According to data crowdfunding projects collected around 3 billion US dollars in 2012 and in 2016 the number was much more than 30 billion US dollars.

But crowdfunding is not only a fundraising for some project, there are different platforms with specifically developed instruments. In other words it’s a system with its own “cogs” allowing numerous project to work. And the further the less this systems are similar to each other. We have prepared an analysis of business models involves crowdfunding as well as infographics with explanations. So it is easier to systemize information about crowdfunding and its dimensions.

What is crowdfunding

The term “crowdfunding” was born in 2006. First it appeared in articles of the American writer and journalist Jeff Hau. Thus fundraising for a common goal exists since the beginning of time.

Crowdfunding is a way of attracting money from different people to your own project. In fact, the method is reflected in its name. Crowd is a bunch of people, funding means collecting money. You can raise funds for different objects with crowdfunding. It can be a implementation of a service or a product, it can be fundraising for a treatment or even for making possible a meeting of two persons in love.

Very often you can see the word “crowdfunding” together with the term “crowdsourcing”. In general sense crowdsourcing is the seizing of crowd opportunities in own project. Crowdfunding can be considered as a part of crowdsourcing. Because if the “source” can be different, not only financial, “funding” is namely money raising.

Crowdfunding: classification

Business models include crowdfunding can be divided in accordance with these frames of reference:

• Project goal: business, art, politics, culture, creative project

• Type of reward: financial, non-financial, free of charge

• Donations – no reward

• It is worth noting donation was long time the main form of crowdfunding. What is actually donation? Backers (users decided to donate their money to one or another project) invest in one or another social, political or medical project and don’t expect to get any physical reward. That means there are no remuneration obligations. Most frequently fund are raised that way for medical treatments, restoration of monuments, event of different charity organisations.

• The maximum reward you can expect by this type of crowdfunding can be reference of donor names and also gratitude expressed personally by project leaders. There are several websites focus on that type of crowdfunding: http://www.betterplace.org/de in Germany, http://respekt.net/ in Austria, Rusini and dobro.mail.ru in Russia.

Non-financial reward: products, gratitudes, souvenirs

• It is one of the most convenient models for production projects of crowdfunding. It can be applied from small handmade projects to innovative technologies. Now this method is very common because it established itself among various users. By investing in the project the backer gives a credibility to the producer. In other words he places a preorder. For instance in case of musical project it could be a physical album copy, reference in the credits in case of music video or a film, concert tickets and many others.

• The authors commit to deliver the product after release. So the backers purchase the exclusive product the very first. And it can be the single release of the product. This model of exclusivity significantly warms up interest of potential investors. In some way crowdfunding becomes a retail store of exclusive goods you can’t purchase right at the moment.

• Financial reward: crowdinvesting

Unlike the previous model the main benchmark of crowdinvesting is a financial reward in exchange of project support. This model can be considered same as business investment with a view to prospective benefits.