Thursday, 14 June 2012 13:53

How does crowdfunding work?

A basic answer to the question: how does crowdfunding work? Definition of crowdfunding: the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet (oxford dictionary)

So the following elements normally form part of this process.

1. A platform like Startme.co.za, which hosts various funding campaigns or proposals added by entrepreneurs, artists, community projects and others who are hoping to raise a certain amount of funds.

2. A funding target - so R1 mil for example for the campaign. You should note that the lower the overall target, the easier it will be to hit it, as StartMe makes clear. Of course, you also need enough money to actually do your research. We are suggesting that campaigns shoot for a number in the hundreds to low thousands of Rands, a target that is achievable for first-time campaigns. Note: if you raise more than your target, you get to keep the extra! There are two additional things you’ll have to factor in when coming up with a target. First, StartMe will take five percent of the total for campaigns that hit their target (if you don’t make your target, then it’s nine percent). Second, a critical component of crowdfunding campaigns is rewards going to contributors and the cost of those rewards needs to be incorporated into the target.

3. A campaign length. typically something between 30 to 9o days for most campaigns. You need to remember that it may take time for enough funders to see your campaign. In addition, you may want build up momentum towards raising the money needed to reach your campaign target.

Published in SA Crowd Funding Blog

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