Economics

Crowdfunding this is how crowd financing works

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What does crowdfunding actually mean? And what is it about? What should you consider when it comes to digital crowdfunding.

The essentials in brief:

  • A large number of donors finance a project with small amounts of money under the term crowdfunding.
  • Crowdfunding participation is comparable to a donation. In return, donors usually receive material goods or certain project-related privileges.
  • Crowdinvesting, on the other hand, means financing in which the investor is promised interest or a profit-sharing.
  • Before participating in crowdfunding, find out what will happen to your money if the crowdfunding project fails or does not materialize.

Crowdfunding is a new form which is relatively, the financing specific projects and ideas. Using special crowdfunding platforms, projects such as a film, a book or a software idea are presented and supporters, in particular donors, are sought. The basic idea: a large number of small financiers (the “swarm”) jointly implement a project.

CROWDFUNDING – CROWD FINANCING OF CREATIVE PROJECTS

In the early days of crowdfunding, projects in the areas of social affairs, art, music, film and literature were mainly financed. The instrument of crowdfunding is still used today primarily by actors who cannot or may not want to acquire the necessary funds in the conventional way, for example through loans. 

Through crowdfunding, for example, fans of an author or a musician can participate financially in his next book or record and thus support his work or in many cases make it possible in the first place. This is how world travelers can pay for their circumnavigation of the world, about which they then write a book. 

“THANK YOU” FOR CROWDFUNDING DONORS

Participating in crowdfunding is comparable to making a donation. In return, as a supporter, you will not receive any interest or dividends , but material goods or certain privileges . For example, you will receive a signed version of the book or exclusive insights into the new film before it is published.

A special mention – for example in the credits of the film – is also conceivable. In turn, supporters of a band can hope to gain access to the artists’ backstage area. 

In some cases, donors also receive a donation receipt  and can thus take advantage of tax benefits. Often the consideration given is also graded according to the amount of the donation. Those who give more money receive more exclusive consideration.

CROWDFUNDING AND CROWD INVESTING – WHAT IS THE DIFFERENCE?

Because the financial participation in crowdfunding qualifies as a donation, this type of participation is not a classic financial investment – in comparison to crowdinvesting. Crowdinvesting, too, is known as crowd financing and is offered via internet platforms. The transitions from crowdfunding to crowdinvesting are fluid.

CROWDFUNDING: WHAT TO LOOK OUT FOR

  • Before making a donation, find out via crowdfunding what will happen to your money if the project fails. Do you get your money back?
  • Check out what happens when a crowdfunding project fails. Because that is particularly possible with new and young companies and projects. You can usually find information on this in the terms and conditions of the crowdfunding platforms.
  • Be aware that when you participate in crowdfunding, you usually have no say in or influence decisions.

Make sure you get a donation receipt for your money. This is the only way you can take advantage of tax advantages through crowdfunding

Hello, I have been working as an investment consultant and author for more than 20 years. I love what I do and I have enriched everyone around me. A lot of money is not important, the main thing is how you use the money.

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