What is crowdfunding and how it works
Crowdfunding is an innovative form of financing, which allows you to raise funds for multiple uses with the contribution of small and medium-sized lenders, generally through special digital platforms.
This is a funding that starts from the bottom, proposing itself as a valid alternative to bank loans granted by traditional credit institutions, often inaccessible or too burdensome due to high interest rates.
With crowdfunding, you can raise funds for your business or startup project from the public. In exchange for a pledge of money, backers receive stocks or other rights in your company.
You can use this mechanism to finance projects such as startups, new products, marketing and advertising costs, team expansion (for example by hiring employees on contract), capital acquisitions (for example by purchasing an existing business) and even operations that are not profitable at first but will generate significant benefits later on (for example a service whose profits never cover expenses).
The best way to explain how crowdfunding works is with an analogy: imagine you want to open a restaurant. You need cash to buy equipment and stock food; then you must finish setting up the premises before opening day arrives. So what do you do? You ask your friends, family members and colleagues for help in order to get enough funding until the end of the month when you expect revenues from sales to reach a level that allows covering all expenditures without incurring any losses
The first form of crowdfunding was the donation-based. This means that people donated money to a cause without expecting anything in return or, at most, a purely symbolic reward.
Reward crowd-funding is a form of crowdfunding in which the investor receives something other than equity in exchange for their investment. For example, investors might receive products or services from a project that they have supported.
Debt crowdfunding or lending crowdfundingLending crowdfunding, also known as social lending and peer-to-peer lending, is a form of collective financing to individuals or companies. In this case, in exchange for the money granted for the realization of a specific project, the lenders obtain the reimbursement of the invested capital plus a predetermined return.
Basically, the sums disbursed by the lenders are repaid with the increase of an interest rate set before the loan is disbursed.
Lending crowdfunding platforms act as financial intermediaries, allowing those in need of funds to receive the necessary financing for their projects, and lenders to find new investment opportunities.
Equity crowdfunding is a new fundraising method that allows multiple investors to invest in startups or innovative companies, receiving company shares.
Basically, for an investment, the company that receives the capital gives each investor a shareholding title in the company, including the property and administrative rights deriving from it.
The term "equity" in this case therefore refers to the type of reward allocated to those who enter capital in the fundraising campaign launched by the startup or company via an online platform.
Real Estate crowdfunding
Real estate crowdfunding is an equity or lending crowd investment that supports the realization of specific real estate projects.
Investors and companies come together through specific crowdfunding portals to invest in a real estate project, which can consist of new buildings, renovations, or energy redevelopments.