Much hush-hush is there regarding crowdfunding and its great returns as well as potential risks etc in the market. Like most investment opportunities this one also comes with positives and negatives. However before making your mind on this, it’s important that you know the exact problem with the misuse of the system, which may lead to problems. Once you know the risk, and how to safeguard yourself, you would be able to take all the benefits of crowdfunding to multiply your money.
What is the crowd
The word “crowd” in the tern crowdfunding refers to the common man who forms the crowd in any case anywhere. The group or cluster of people from the global crowd, who funds for a business or organization, makes for the term. Now to simplify this, let’s discuss it further.
How crowdfunding works
Normally a business or startup would not wait to accumulate the full principle out of the founder’s pocket to start. The general approach is to arrange funds from an investing body. And this investing body can be a bank, or other finance company, or acquaintances, family, or friends. Anyone who verifies the details and legitimacy of the founder and the feasibility of the project, or anyone who simply trusts the founder will invest on the business.
But such investments can only be demanded from a huge body like a bank, or from very close contacts that may bestow trust on you, and may never budge you for the money if the business goes sick.
However, normal people, who would otherwise lend small amount of money to friends and relatives without knowing if they would ever get it back, may not be as casual with lending, when it’s about lending thousands of bucks in a business or startup, where they don’t know the founder in any way. This is pretty normal. And this is where the concept of crowdfunding comes into play.
When a business arranges for crowdfunding, it does so for many reasons. First is that, the founder may not have the collateral needed to go to some bank, and secondly, they may not personally know as many people whom they may request for small investments. But with blockchain crowdfunding options funding a small business can get really easy. It brings scope for the business to get funded by thousands of lenders, while these lenders who are complete strangers to the business, and amongst themselves, have the chance to gain big when the business succeeds.