Crowdfunding is the use of modest sums of money from a large number of people to fund a new business initiative. It is the technique of sponsoring a project or business by soliciting modest sums of money from a large number of people, generally over the Internet in modern times. It takes advantage of the ease of access to vast networks of people via social media and crowdfunding websites to bring investors and entrepreneurs together, with the potential to increase entrepreneurship by broadening the pool of investors beyond the traditional circle of owners, relatives, and venture capitalists. Crowdfunding is a type of alternative finance and crowdsourcing. Crowdfunding raised approximately US$34 billion worldwide in 2015.
Although identical concepts can be implemented via mail-order subscriptions, benefit events, and other techniques, the term crowdfunding relates to Internet-mediated registries. In most jurisdictions, there are limits on who can fund a new firm and how much they can give. The project initiator who presents the idea or project to be funded, individuals or groups who support the concept, and a regulating organization (the “platform”) that brings the parties together to launch the proposal are the three categories of actors in this modern crowdfunding paradigm. These limitations, like the restrictions on hedge fund investing, are intended to safeguard naïve or non-wealthy investors from putting too much of their funds at risk.
Crowdfunding has enabled businesses to raise hundreds of thousands or millions of dollars from anyone who has money to invest. Crowdfunding allows anyone with an idea to present it to a group of eager investors.
The two most conventional applications of the term represent the type of crowdfunding done by start-up companies aiming to introduce a product or service into the world, as well as by individuals who have encountered an emergency. Many people who have been afflicted by a natural disaster, a large medical bill, or another catastrophic incident such as a house fire have gotten financial assistance that they would not have received otherwise, owing to crowdfunding services.
Crowdfunding has been used to support a variety of for-profit, entrepreneurial enterprises, including artistic and creative projects, medical expenditures, vacation, and community-oriented social entrepreneurship projects. Though it has been proposed that crowdfunding is strongly tied to sustainability, empirical validation has revealed that sustainability has just a minor impact in crowdfunding. Its use has also been chastised for subsidizing quack medicine, particularly expensive and false cancer treatments.
In recent years, however, several crowdfunding sites, such as Patreon and Substack, have expanded the scope of crowdsourcing to provide a method for creative people—artists, writers, musicians, or podcasters—to continue their creative labor by obtaining a continuous stream of revenue.
