Crowdfunding: what you need to know
Crowdfunding is a way for people, businesses and charities to raise money. It works through individuals or organisations who invest in (or donate to) crowdfunding projects in return for a potential profit or reward. Investing this way can be risky, so make sure you know what you’re doing.
What is crowdfunding? If a company or person wants to raise money through crowdfunding, they can pitch for it by posting details of their project, business or idea on a crowdfunding website. This means they can avoid going to a bank. The ‘crowd’ in crowdfunding refers to the people, or organisations that provide the money.
How does crowdfunding work?If you visit a crowdfunding website, you should be able to see an overview of the projects being pitched. You might need to register with the website in order to see the pitches, to get more details, or to invest in a project.? Some crowdfunding websites charge investors a fee, which may be a percentage of any profit they make.
If you find a project you’re interested in, you’ll need to look for more details. The business, individual or social enterprise that’s looking to raise money should tell you:
- How much it wants to raise
- How much it has raised so far
- The share in the business offered (if relevant)
- What the money will be used for
- How long the pitch is open for
- How many people have already invested
- What you will receive in return for investing (such as shares in the company)
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