Take a deep breath. I’m here to ease the perplexity and explain what crowdfunding is so that instead of shying away from the topic, you can actively engage in conversations when it comes up.\nLet’s be clear that crowdfunding is not a new concept. What is new is the modern-day variation of crowdfunding, which has exploded on various social media platforms, including Facebook and Twitter. This is where you have likely seen crowdfunding appeals and where your curiosity about what it is began.\nCrowdfunding essentially means financing a project by raising money from a large number of people who you may or may not know.\nSo, do people just give away money to fund strangers’ projects?!\nI knew you would ask. Most of the time, no.\nPeople who invest in a business venture or project by way of crowdfunding tend to do so because they believe in the idea or concept behind the project. It may be something innovative, it may be something progressive or unique, and, if you believe in it enough, you might feel like supporting the cause. But, chances are you want something in return and that reward might come in various flavours:\n\n A reward, also known as rewards-based crowdfunding: In return for your contribution to the project, you are given a gift, which may be a sample of the product being produced, but it also may be an unrelated item such as a gift card or promotional item. Alternatively, you may receive an intangible reward such as an invitation to a private launch party or advanced access to the product or service being produced.\n A share in the venture, also known as equity-based crowdfunding: Your reward is in the form of gaining a small piece of ownership in the venture itself.\n Interest payments plus principal, also known as debt-based crowdfunding: In this case, you are lending funds to a project and you expect to be paid interest payments plus principal.\n\nThe specific type of crowdfunding used depends on various factors such as the amount of funding required, the urgency, the prospect of gaining alternative financing and the willingness to give up ownership in the project.\nAnd then, of course, there are charitable humans who don’t want anything in return and are game to participate in donation-based crowdfunding, which has no reward attached to it at all. Naturally, this type of crowdfunding is often used to raise funds for not-for-profit causes.\nSo now that you know what all the fuss is about, hopefully you won’t have to back away from those never-ending conversations on the subject. Now that you’re in the loop, maybe you’ll even start up the next conversation at a networking event or dinner party. Who knows, you might even contribute to the next crowdfunding appeal you see on social media.\nKeep the conversation going\nAre you bewildered by the idea of crowdfunding or can you keep up with the frenzy that is consuming so much social media attention? Post a comment below.\nDisclaimer\nThe views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.