New Delhi: Making use of small amounts of capital from a large number of individuals to finance a new business venture or startup is called crowdffunding.


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The investment platform invites both investors and fund seekers together through social media and crowdfunding websites.


How it works?


Using this model, any entrepreneur with a robust business model can raise money from the ones interested in making investment.


Crowdfunding provides a forum to anyone with an idea to pitch it in front of waiting investors. Crowdfunding sites generate revenue from a percentage of the funds raised.


Crowdfunding has been used to fund a wide range for-profit entrepreneurial ventures such as artistic and creative projects, medical expenses, travel, or community-oriented social entrepreneurship projects


Two primary types of crowdfunding:


1) Rewards crowdfunding


The entrepreneurs presell a product or service to launch a business concept without incurring debt or sacrificing equity or shares.


2) Equity crowdfunding


The backer receives shares of a company, usually in its early stages, in exchange for the money pledged.


Benefit for Investors


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 sent a free bar to each of its investors.