What is Crowdfunding?
What is crowdfunding? This question constitutes the main concern that this article seeks to answer. In this article, we will explore the concept of crowdfunding, a financing method participatory that is increasingly popular among entrepreneurs in Africa. Crowdfunding allows funds to be collected from a wide audience, thanks to dedicated online platforms.
This method of financing can help entrepreneurs realize their projects and develop their business, by offering them an alternative to traditional sources of financing.
In this article, we will explain how crowdfunding works, the advantages and disadvantages of this method, as well as the best practices for a successful fundraising campaign. financing in Africa. But before we start, here's how to get out of debt? Let's go !!
Table of contents
What is crowdfunding?
Crowdfunding, also known as crowdfunding, is a way of collaborative funding which allows entrepreneurs, creators or project leaders to collect funds from a large number of people. This method of financing is often used for cultural, artistic, social or environmental projects, but it can also be used for entrepreneurial and commercial projects.
Unlike traditional financing methods, crowdfunding allows project leaders to raise funds directly from the community interested in their project, without going through traditional financial intermediaries such as banks or venture capital investorsThis approach also allows contributors to invest small amounts in projects that are important to them and participate in their success.
Crowdfunding has become increasingly popular in recent years thanks to the emergence of online crowdfunding platforms, which facilitate the fundraising process and allow project leaders to reach a wide audience of potential contributors.
How does crowdfunding work?
Crowdfunding, or participatory financing, is a process that allows entrepreneurs, artists, or organizations to raise funds by soliciting contributions from a large audience, often through an online platform. Here's a look at how crowdfunding works, explained in a human way.
1. Identifying the idea
It all starts with identifying an idea or project that you want to fund. This could be launching a product, creating an album, funding a social initiative, or anything else that requires funds. It is essential that your idea is clear and well-defined, as this will help capture the interest of potential contributors.
2. Choice of platform
Once you have defined your project, you need to choose the right crowdfunding platform. There are several, each with its own characteristics. Platforms like Kickstarter and Indiegogo are popular for creative projects, while Ulule can be more oriented towards local initiatives. Selecting the right platform is crucial, as it will influence the visibility and success of your campaign.
3. Creation of the campaign
Creating your campaign is a key step. This involves writing an engaging description of your project, including attractive images and videos, and setting funding goals. You should also offer compelling rewards to entice people to contribute. These rewards can range from simple thanks to exclusive products or unique experiences.
4. Launch of the campaign
Once everything is prepared, you can launch your campaign. At this stage, it is important to actively promote your project. Use social media, your website and other communication channels to reach your target audience. The success of a crowdfunding campaign often depends on the ability to mobilize a large network of support.
5. Fundraising
During the campaign, contributors can make funding pledges. Depending on the crowdfunding model chosen, funds can be collected immediately or only if the funding goal is reached. There are different models, such as donation crowdfunding, where contributors receive nothing in return, or reward crowdfunding, where they receive rewards in exchange for their support.
6. Engagement with contributors
Throughout the campaign, it’s essential to stay connected with your backers. Answer their questions, thank them for their support, and update them on the progress of your project. Authentic engagement can build trust and encourage others to contribute.
7. Closing of the campaign
At the end of the campaign, the funds are usually transferred to the project owner, provided that the funding goal has been reached. If the campaign was successful, it is time to start working on the project and delivering the promised rewards. If the goal has not been reached, some crowdfunding models allow for a portion of the funds to be recovered, while others do not.
8. Monitoring and implementation
Once your project is funded, it’s crucial to keep your promises to your backers. This includes completing the project on time and delivering rewards. Regularly communicating the progress of the project is essential to maintaining the trust and engagement of your community.
In summary, crowdfunding works as a collaborative process where individuals support projects that interest them. By following these steps, you can effectively navigate the world of crowdfunding and turn your idea into reality.
The different forms of crowdfunding
Crowdfunding can take many forms. We distinguish three main forms of crowdfunding:
✔️ Donations
To make a donation is to offer something to a third party without compensation. By making a donation to a project leader, the Internet user contributes to the development of this event without expecting anything in return.
However, the investor is usually rewarded symbolically. Indeed, if it is a film for example, his name may appear in the credits. A promotional object may be attributed to him. This form of crowdfunding also allows for advertising around this project, so that the holder claims subsidies.
✔️ Crowd equity
Crowd equity is a method of crowdfunding that appeared in 2014. With this form of financing, investors receive in return a portion of the company's shares. In some cases, this form provides tax benefits for its investors. Indeed, by supporting a project in crowdequity, the investor holds part of the company's capital.
To benefit from this type of financing, certain conditions must be met. Crowd-equity campaigns are reserved exclusively for simplified joint stock companies and public limited companies. This risk-taking is particularly used for large-scale projects given the larger amounts.
✔️ crowd lending
Crowd-lending is a subcategory of crowdfunding. It consists of financing projects submitted under the platforms by loans subscribed by the public. Crowdlending is launched on crowdfunding platforms when banks can't follow this kind of investment. As such, the budgets of local authorities benefit by embarking on this method of crowdfunding.
Advantages of crowdfunding
Participatory financing, or crowdfunding, has many advantages for entrepreneurs and project creators. Here are some of the main benefits, described in a human way.
1. Access to debt-free funds
One of the main advantages of crowdfunding is that it allows you to access funds without having to go into debt. Unlike bank loans, where you have to repay the amount borrowed with interest, crowdfunding relies on the support of the community. This means that you can finance your project without having to worry about repayments.
2. Validation of the idea
Launching a crowdfunding campaign can serve as a test run for your idea. If people are willing to invest in your project, it indicates that there is real interest in the market. This validation can be very valuable, as it allows you to fine-tune your concept before officially launching it.
3. Creating a community
Crowdfunding helps you bring together a community of supporters around your project. These people are not just investors; they become ambassadors for your brand. Their engagement can generate positive word of mouth and strengthen the visibility of your project.
4. Flexibility in financing
Crowdfunding offers flexibility that traditional funding sources cannot always provide. You can choose the amount you want to raise and set specific goals. Additionally, you have the opportunity to offer different rewards depending on the level of contribution, which attracts a wide range of supporters.
5. Visibility and marketing
A crowdfunding campaign can also serve as a marketing strategy. By presenting your project on a crowdfunding platform, you reach a wider audience and generate interest even before your product launches. This can create buzz that translates into future sales.
6. Emotional support
Crowdfunding is about more than just the financial side. Contributors often support projects that are personally meaningful to them, which can provide valuable emotional support. Knowing that people believe in your vision can be extremely motivating and strengthen your determination to succeed.
7. Fewer constraints
Unlike traditional investors, who may require significant control over your business, crowdfunding allows you to maintain creative control over your project. You don't have to give away a significant portion of your business, allowing you to stay true to your vision.
In short, crowdfunding offers a multitude of benefits that can help entrepreneurs bring their ideas to life while building an engaged community around their project. It is an innovative and accessible approach that is transforming the way projects are financed.
The Disadvantages of Crowdfunding
Although it has advantages, crowdfunding also has disadvantages.
✔️ Very expensive energy expenditure
You need to invest a good part of your time in communication. Especially at the time of the campaign where effective communication to generate public motivation to finance the project is necessary. In fact, not having succeeded in a campaign of through crowdfunding can be degrading for the image of the project. Indeed, the campaign crowdfunding can be seen as a measure of credibility by your customers and community.
✔️ The very high cost
He's more expensive than a bank loan. When you submit your project on a crowdfunding platform, you pay a commission to this platform which acts as an intermediary. This commission varies depending on the platform and is taken in case of success. In addition to these costs, you must take into account the communication expenses. All this while you have no assurance of being financed. In case of success, in Crowdlending you will pay interest on the amount received. However, only projects that have successfully collected will be commissioned.
✔️Ldilution of shares
It may happen that you are no longer the sole owner of the project. You lose your decision-making power. The dilution of shares occurs mainly when you are in the context of a Crowd-equity. For this, you must think carefully about the financing terms so as not to lose control of your company.
✔️ Theft of ideass
Many people can have their ideas stolen. The reality is that the submitted projects are accessible to everyone and increase the risk of theft.
✔️ Financial risk
The project leader is exposed to a financial risk; he must communicate, feed and manage his campaign crowdfunding. This whole process has a cost and it should not be overlooked. The submission of a project on a platform of through crowdfunding donating is free.
How to benefit from crowdfunding
Crowdfunding can be a great way to bring your projects to life, whether it’s a startup, an innovative product, or an artistic initiative. Here are some key steps to maximize your chances of success in a crowdfunding campaign.
1. Define your project
Before you get started, it is crucial to clearly define your project. What are your ideas and goals? What problem does your product or service solve? A clear and concise presentation of your project will allow contributors to quickly understand your vision. Take the time to write a solid plan that describes the different stages of your project, as well as its potential impact.
2. Choose the right platform
There are several crowdfunding platforms, each with its own specificities. Some focus on creative projects, while others are focused on tech startups or social initiatives. Do some research to find the platform that best fits your project and target audience. Sites like Kickstarter, Indiegogo, or Ulule are some of the best known, but there are many others.
3. Create an engaging campaign
The presentation of your campaign is essential. Use high-quality visuals, such as videos and images, to capture the attention of potential backers. Write an engaging description that explains your project, your motivation, and what makes it unique. Don’t forget to include information about the rewards you will offer in exchange for financial support, as this often motivates people to contribute.
4. Set a realistic funding goal
Determine how much money you need to raise to make your project a reality, then set a realistic funding goal. Evaluate production, marketing, and distribution costs. Setting the goal too high can deter backers, while setting the goal too low may not cover your needs. Be transparent about how the funds are used, as this builds trust with backers.
5. Promote your campaign
Once your campaign is launched, it is essential to actively promote it. Use social networks, your website and your mailing list to inform your network about your project. Don’t hesitate to contact bloggers or influencers who might be interested in your initiative. Word of mouth is also a powerful tool, so encourage friends and family to share your campaign.
6. Engage with your community
Throughout your campaign, engage with your backers. Answer their questions, thank them for their support, and keep them updated on your project’s progress. Building an authentic relationship with your community can increase their engagement and encourage them to share your campaign with others.
7. Prepare for the sequel
Once your campaign is over, whether it was successful or not, it’s important to learn from the experience. If you reached your goal, start working on delivering your project and make sure you’re keeping your promises to your backers. If you weren’t successful, analyze what went wrong and consider other options for funding or improving your project.
By following these steps, you can maximize your chances of crowdfunding and turning your ideas into reality. It’s a challenging but rewarding process that allows you to build a community around your project while gaining the financial support you need.
What to know about Islamic crowdfunding
Islamic crowdfunding is by definition a Shariah-compliant financing option that involves funding a project with funds from a group of investors in favor of a Muslim borrower and where the funding campaign and related transactions are conducted through an Islamic crowdfunding site that follows Islamic principles.
The difference between Islamic crowdfunding and conventional crowdsourcing as practiced in the Western world is not fundamentally apparent when we look at the mechanisms used to raise funds: investors (crowd) contribute to the financing of a project by sharing profits and losses with the borrower or project promoter.
The essential differences between the two forms of crowdfunding lie in the following elements:
- Absence of interest (riba) with Islamic crowdfunding while conventional crowdfunding applies and interest rates.
- While conventional crowdfunding primarily aims at profitability, it mainly aims at Sharia-compliant objectives that exclude any unethical project involving speculative elements (Gharar) or gambling.
Islamic crowdfunding is a complementary financing instrument major within Islamic finance. This important way of lending is the first change since the emergence of Shariah-compliant finance. Shariah-compliant crowdfunding is a funding mechanism where funds are collected from a number of people using a platform that complies with Islamic Sharia rules. It connects investors with entrepreneurs.
Islamic crowdfunding follows the principles of Islamic finance. It encourages cooperation between a large number of people to invest funds in a project or business. This is in line with the Sharia principle that excess resources are transferred to sectors lacking wealth. Halal crowdfunding has recently gained increasing acceptance and is becoming increasingly an important financing instrument in the world of Islamic finance. Since crowdfunding offers debt-based financing, the debt is repaid with profit and not interest, making it Shariah and Halal compliant.
Types of Islamic Crowdfunding
Crowdfunding Waqf (Philanthropic Crowdfunding)
Waqf crowdfunding is part of the concept of pious foundation (Waqf) of Islamic finance. The funds collected are used to finance projects of general interest, such as charity, sustainable development or education. This philanthropic model makes it possible to mobilize funding from donors who are keen to contribute to initiatives with a positive social impact, in accordance with the values of Sharia.
Waqf crowdfunding projects are not aimed at profit-making, but rather at creating societal value. This type of crowdfunding is particularly suited to non-profit organisations and charitable initiatives, although it may be more difficult to sustain than a Sharia revenue-generating model where lenders provide a loan and expect to be paid for the principal and profit.
Equity Crowdfunding
Islamic participatory crowdfunding is based on the principle of Musharaka, a partnership contract where the capital providers and the financed company share profits and losses. Investors thus become shareholders of the company in return for their financing.
This model allows for raising funds while offering contributors a stake in the company's results, in line with the profit and risk sharing principles of Islamic finance. However, it also involves sharing potential losses, which may be perceived as riskier by investors. Careful project selection and risk assessment are therefore essential to ensure the success of this type of Islamic participatory crowdfunding.
Reward-based Crowdfunding
In rewards-based crowdfunding, contributors receive a good or service provided by the company in return for their funding. This model is similar to a Sharia-compliant sales contract (Bay'), where the exchange of payment for a product or service is lawful. The advantage of this type of crowdfunding is that it allows companies to generate funds while providing tangible compensation to investors, without having to give them part of the capital.
However, rewards must be clearly defined and not linked to interest, in line with the principles of Islamic finance. This model is particularly suitable for companies offering concrete products or services, rather than more abstract projects.
Donation-based Crowdfunding
Donation crowdfunding is part of the concept of charity (Sadaqah) in Islamic finance. Contributors make a donation without expecting any direct compensation, with an altruistic view of supporting a project. This model makes it possible to raise funds from donors who are keen to contribute to initiatives with a positive social or environmental impact, in accordance with the values of Islamic finance.
The absence of material compensation makes it a model particularly suited to non-profit organizations, charities or projects with a humanitarian vocation. However, it requires effective communication to convince potential donors of the usefulness and viability of the supported project.
Crowdfunding by loans (Lending-based Crowdfunding)
Islamic loan crowdfunding is part of the benevolent loan (Qard Al-Hasan), where investors lend money to the company without charging interest. This model allows for raising funds while respecting the prohibition of interest (Riba) in Islamic finance.
The company agrees to repay the amount borrowed, without any obligation to pay interest. This type of crowdfunding is particularly suitable for projects requiring short or medium-term financing, such as working capital or one-off investments. However, the lack of remuneration for investors can make this model less attractive than traditional financing.
Trends in Islamic Crowdfunding
Crowdfunding will soon become a necessary avenue for Muslim countries and real estate crowdfunding is one of the most effective forms of investment. Middle East as well as Far East, a number of platforms do not present themselves as sharia-compliant crowdsourcing vehicles, but the mechanics of their business model are closely aligned with Islamic finance rules.
Islamic crowdfunding does not only address the problems of Muslim communities because it is an ethical form of financing that focuses on values and ethics such as social development. Islamic-crowdfunding.com has selected for you the best platforms dedicated to Sharia compliant crowdfunding.
Crowdfunding platforms
There are many crowdfunding platforms, each with its own features and conditions. Here are some examples:
⚡️Kickstarter
Kickstarter is an online crowdfunding platform created in 2009. It allows project leaders to present their idea and solicit funds from a community of potential contributors. Funding is in the form of donations., and contributors receive in exchange compensation specified by the project leader.
To present a project on Kickstarter, you must first submit a proposal to the platform's team, which examines the quality and viability of the project. If the proposal is accepted, the project leader can then create a presentation page on the site. This page must include a detailed description of the project, a forecast budget and a list of rewards offered to contributors.
When the crowdfunding campaign starts, the project leader must mobilize his community and use social networks to publicize his project and encourage people to contribute. It is also important to set a realistic fundraising goal, taking into account the platform fees and the production costs of the project. Once the campaign is launched, the project leader must regularly update their presentation page to inform contributors of the progress of the project and encourage them to share it with their network.
If the funding goal is reached, the project owner receives the funds collected, minus the platform fees. If the goal is not reached, contributors are reimbursed and the project leader receives nothing.
⚡️Ulule
Ulule is a French crowdfunding platform that specializes in creative, innovative and solidarity projects. Founded in 2010, it has become one of the leading crowdfunding platforms in Europe with more than 29 projects funded to date. Ulule offers two types of financing: donation financing and presale financing. Donation funding allows contributors to financially support a project without expecting anything in return.
Pre-sale funding, on the other hand, allows contributors to purchase products or services related to the project before they are put on the market. To benefit from funding on Ulule, it is important to present a creative, innovative and original project. The project must also be clearly defined and explained on the campaign page, with quality images and videos. It is also important to offer attractive rewards to contributors, depending on their level of participation. Finally, it is recommended to promote your campaign on social networks and seek support from your community.
⚡️KissKissBankBank
KissKissBankBank is a crowdfunding platform that was founded in 2009 in France. It allows project leaders to collect funds from individuals, in exchange for compensation. Unlike Kickstarter, which is a large-scale crowdfunding platform, KissKissBankBank focuses on small-scale projects and creative projects such as movies, books, art projects, music projects, business projects, etc.
To get started, project owners must create a project page on the platform, which describes their idea, their funding goal, the rewards offered, as well as details about the project itself. Once the project page is live, fundraising can begin. Contributors can choose to donate a sum of money in exchange for rewards. KissKissBankBank uses a funding system " all or nothing which means that project promoters must reach their fundraising goal to receive the funds.
Finally, once fundraising is complete, project leaders can start carrying out their project, and contributors will receive their rewards. KissKissBankBank charges a 5% commission on funds raised, as well as a 3% payment fee for credit card contributions.
⚡️Indiegogo
Indiegogo is another popular crowdfunding platform that allows project leaders to raise funds from a large number of contributors, called "backers".backers". Founded in 2008, the platform has become one of the major players in the crowdfunding industry, with projects ranging from technology startups to artistic and creative projects.
Indiegogo offers two types of crowdfunding campaigns: crowdfunding campaigns all or nothing financing and the campaigns of flexible financing. In an all-or-nothing fundraising campaign, the project owner must reach a predetermined funding goal to receive the funds raised. In a flexible fundraising campaign, the project owner can keep the funds raised, even if they have not reached their funding goal.
FAQ
Can all projects benefit from crowdfunding?
A: No, All crowdfunding platforms have selection criteria for eligible projects. It is important to read the conditions carefully before applying.
What is the percentage of commission taken by crowdfunding platforms?
A: It depends on the platforms, but in general they take a percentage of the amount collected ranging from 5% to 10%. It is important to read the conditions carefully to avoid unpleasant surprises.
How to properly present your project on a crowdfunding platform?
A: It is important to present a clear, well-structured project that arouses interest. It is also necessary to prepare an attractive and detailed presentation video. It is also advisable to offer attractive rewards for donors.
What happens if the funding goal is not reached?
A: It depends on the platforms, but in general donors are refunded if the fundraising goal is not met.
Are there any additional fees to pay apart from the platform commission?
A: Some platforms may charge additional fees for transferring funds or for using certain services.
How to ensure the security of transactions on crowdfunding platforms?
A: Crowdfunding platforms have security measures in place to protect donors and project owners. It is important to read the conditions carefully to learn more about these security measures.
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