What is Crowdfunding?

 Crowdfunding is a method of raising money for a project or venture by soliciting small contributions from a large number of people, typically via the internet.

Crowdfunding platforms such as Kickstarter and GoFundMe allow individuals and organizations to create fundraising campaigns and share them with a broad audience.

Backers who support a campaign typically receive rewards or perks in exchange for their contribution.

There are several advantages of crowdfunding:

Access to funding:

Crowdfunding allows individuals and small businesses to raise money for their projects and ideas that may not have been possible through traditional means of financing.

Low risk:

Backers can invest small amounts of money in a project, reducing their overall risk.

Early feedback:

Crowdfunding campaigns can be used to gauge interest in a product or idea, providing valuable feedback to creators before they invest significant resources into it.

Marketing and promotion:

Crowdfunding campaigns can serve as a powerful tool for marketing and promotion, by allowing creators to reach a large audience and build a community around their project.

Flexibility:

Crowdfunding campaigns can be used to fund a wide range of projects, from creative projects like films and albums to social causes and startup businesses.

Tax benefits:

In some countries, contributions made through crowdfunding may be tax-deductible for the backers.

There are also several disadvantages of crowdfunding: 

No guarantee of success:

Crowdfunding campaigns may not reach their fundraising goals, and even if they do, there is no guarantee that the project will be completed or successful.

Limited reach:

Crowdfunding campaigns rely on the ability to reach a large audience, and may not be successful if the project is not able to generate enough interest.

Legal and regulatory challenges:

Crowdfunding is a relatively new form of fundraising and is subject to a complex set of laws and regulations that can be difficult to navigate.

Limited control:

Once the funding goal is reached, creators may be obligated to fulfil rewards or perks promised to backers, which can be costly and time-consuming.

Lack of regulation and oversight:

There is a lack of regulation and oversight in the crowdfunding market, which can lead to fraud or mismanagement of funds.

No equity:

Crowdfunding does not provide equity or ownership stake to the backers, only perks or rewards.

Limited to certain types of projects:

Crowdfunding might not be suitable for certain types of projects, for example, those that require a large upfront investment and have long-term payoffs.

How investors get paid back through crowdfunding can vary depending on the type of campaign and platform.

Rewards-based crowdfunding:

In this type of crowdfunding, backers typically receive rewards or perks in exchange for their contributions, rather than a financial return. The rewards are usually related to the project, such as a pre-release version of a product or a limited-edition item. 

Equity-based crowdfunding:

In this type of crowdfunding, backers receive an ownership stake in the company or project in exchange for their investment. The investors may receive dividends or a share of the profits if the company becomes profitable.

Debt-based crowdfunding:

In this type of crowdfunding, investors lend money to a company or project and are repaid with interest. The repayment period, interest rate and other terms are agreed upon in advance.

In all cases, it's important to read the terms and conditions of the campaign and the platform carefully, to understand the risks and rewards involved and the repayment plan.

There have been many successful crowdfunding projects over the years. Here are a few notable examples:

Pebble Time:

A smartwatch project that raised over $20 million on Kickstarter in 2015, breaking the record for the most money raised on the platform at the time.

Oculus Rift:

A virtual reality headset project that raised over $2 million on Kickstarter in 2012. The company was later acquired by Facebook for $2 billion.

Star Citizen:

A space simulation game project that has raised over $300 million through crowdfunding and private investment as of 2021.

Exploding Kittens: A card game project that raised over $8 million on Kickstarter in 2015, becoming the most-backed project in the website's history.

Reading Rainbow:

An educational children's show raised over $5.4 million on Kickstarter in 2014, which was the most funded campaign in the website's education category.

These are just a few examples of the many successful crowdfunding projects that have been launched in recent years. It's worth noting that not all crowdfunded projects are successful, and there is always a risk of not getting a return on investment.

There have been many instances of crowdfunded projects that have failed or "busted" in recent years. Some examples include:

The Coolest Cooler:

This project, which promised to deliver a high-tech cooler with built-in speakers, a blender, and other features, raised more than $13 million on Kickstarter in 2014 but faced significant production and delivery delays. Many backers never received their coolers, and the company eventually filed for bankruptcy.

The Lily Drone:

This project, which promised to deliver a self-flying drone camera, raised more than $34 million on Kickstarter in 2015 but faced significant production and delivery delays. The company eventually refunded most of the money to backers and filed for bankruptcy.

Zano:

A drone that promised to take selfies. It raised $3.4m on Kickstarter in 2014 but the company was unable to deliver the product.

The Veronica Mars movie:

A Kickstarter campaign to fund a movie based on the Veronica Mars TV series raised more than $5.7 million in 2013, but the movie received mixed reviews and did not perform well at the box office.

The Fyre Festival:

A luxury music festival organized by Billy McFarland, who raised $26 million from investors, it was promoted on social media by models and influencers, but the festival failed to deliver on its promises and turned into a disaster, with inadequate accommodation, food, and security and the festival was cancelled after a day.

It's important to note that these examples are not representative of all crowdfunded projects, many projects are successful and deliver on their promises.