What is crowdfunding? How it works, types and advantages

What is crowdfunding? Today we often hear about a well-established reality in Italy too: crowdfunding (from the English terms crowd, "crowd", and funding, "financing").
To date, over 300 million euros have been raised with crowdfunding campaigns in Italy, according to data from the Entrepreneurship Finance & Economy Observatory of the Polytechnic University of Milan.
Crowdfunding has been a turning point for companies that need to raise liquidity, i.e.
find money or investors.
If until a few years ago the only options to raise the funds necessary to create a project, a business or a startup were to ask for a loan from the bank or actively propose yourself to traditional investors, today thanks to crowdfunding this is no longer the case.
Let's see in detail what crowdfunding is, how it works, what types exist and what the advantages of a crowdfunding campaign are.
Complete guide to crowdfunding What is crowdfunding How crowdfunding works Types of crowdfunding Crowdfunding platforms in Italy The advantages of crowdfunding read also Crowdfunding, new EU regulation approved: what changes What is crowdfunding The term "crowdfunding" literally means "financing of the crowd”, a tool that allows anyone to invest their savings in the realization of a project.
In a world where finding liquidity to invest in a project has its difficulties, especially for young people, creatives, makers, innovators, crowdfunding could summarily be defined as an alternative form of access to credit.
To find the money and finance an idea, therefore, we do not resort to traditional channels, to those banks that increasingly deny access to credit to individuals and small businesses, but to the crowd, or ordinary people.
Ultimately, it is a form of bottom-up economy, one of the many results of the sharing economy which, in the face of the global crisis, rolled up its sleeves to find alternative forms of financing.
read also Equity Crowdfunding: the best platforms in Italy How crowdfunding works The most powerful tool used by crowdfunding is undoubtedly the web.
Generally the procedure is simple and immediate: a startupper or an ordinary person who has decided to materialize his idea turns to a specific online platform, specialized in raising financing, to which he presents his project.
There are many platforms that deal with crowdfunding, some of the best known are Kickstarter, Mamacrowd, Production from below, Indiegogo and many others.
If the project presented is deemed worthy of note, it gets a space on the platform and a fundraising campaign starts: a budget necessary to realize the idea and a deadline by which the funds must be obtained are set.
Depending on the type of collection, there are different selection and evaluation criteria for the project being presented.
The next step is publicizing the idea: it is talked about on the social networks connected to the platform, the press office is activated to circulate the news, perhaps on other websites or specialized blogs.
If the project receives the necessary funding by the set date, the project goes ahead and, in all likelihood, will be realized.
Even for investors the procedure is quite simple, in fact it is necessary to carry out a few simple operations: choose the online platform; open an account; choose the project from the "projects" section and click on the "invest" button; fill in the guarantee forms provided by Consob; choose the amount to invest; after receiving an email with all the information relating to the investment and the IBAN code, you can proceed with the payment via bank transfer.
Types of crowdfunding There are different types of crowdfunding, different ways in which it is possible to request and obtain financing for a project.
These are methods that vary from country to country because they must adapt to specific fiscal and economic legislation but can be summarized in the following points: Donation-based crowdfunding: in this case the investor, the financier of the idea, makes a donation in money.
It is, therefore, a donor who receives nothing in return, the payment of the sum is made exclusively with a charitable intent.
This is a type of crowdfunding particularly suitable for projects of a social and civil nature.
Being essentially a donation, the benefactors, although they are called backers, play the role of real philanthropists, offering their money for non-profit projects.
Reward-based crowdfunding: in this model the investor receives a reward, i.e.
his financing allows him to have an economic return which can consist, with the differences of the case, in a sum of money or even in the product/service created.
Crowdfunding reward is the most used type to sell a product or service even before its creation.
Contrary to what one might think, however, investors in this type of collection are very involved in determining the characteristics of the product and in this case the investor also becomes fundamental for the realization of the proposal.
Lending crowdfunding: known as social lending or P2P lending, this type of financing involves the provision of a real loan through online platforms.
The purpose of this type is to lend money to people or businesses looking for funds that will be used for the growth of the project itself, however in exchange for interest and repayment of the capital.
The money will then be returned to the lender with interest.
Equity crowdfunding: also known as equity crowdfunding, it is the tool that allows a large number of people to finance the raising of capital of private companies.
In exchange for their investment you will obtain company shares, shares or dematerialized shares, based on the type of company in which you decide to invest.
The investment takes place through specific collection platforms, on which it is possible to find out about the companies that are proposing a collection, the characteristics and what type of company share you will have access to.
These portals obviously also play the role of guarantors, given that the projects found online have been selected and only those that could be most profitable for potential investors are visible.
Obviously when you launch a crowdfunding campaign it will also be necessary to have a clear idea of the type of collection most suitable for your needs, in order to be able to achieve your goal.
read also Differences between equity crowdfunding and lending crowdfunding Crowdfunding platforms in Italy There are various crowdfunding platforms: horizontal ones, i.e.
generalist ones, because they allow the financing of different types of projects, and vertical ones, specialized in a single sector (for example culture) or, even, in a single product (books and ebooks).
The register of portal managers dedicated to crowdfunding available on the Consob website (National Commission for Companies and the Stock Exchange), updated on 20 October 2023, includes 47 authorized portals.
Here are the crowdfunding platforms authorized in Italy: Agri4Crowd Srl; Activant Srl; BacktoWork24 Srl; Baldi Finance SpA.; Bildap Srl; Brickup Srl; Build around Srl; ClubDeal SpA; Concrete srl; Crowdfundme SpA; Crowdinvest Srl; Doorway Srl SB; Ecomill Srl; Equifunding Srl; Exre Crowdfunding Srl; Finanza Condivisa Srl; Firmaid Srl; Forcrowd Srl; Foxcrowd Srl; Fundera Srl; Idea crowdfunding Srl; Innexta Scrl; Lifeseeder SpA; Meridian 180 Srl; MF NextEquity crowdfunding Srl; Miglior Srl; Muum Lab Srl; Opstart Srl; Pariter Equity Srl; PartnersInCrowd Srl; Puzzle Funding Srl; Restartup Srl; Re-Anima Srl; ReRoi Srl; Roots Funding Srl; NoiSoci Srl; StarsUp Srl; Start Funding Srl; The Ing Project Srl; UpsideTown Srl; Walliance SpA; WeAreStarting Srl; WeDeal Srl: Y-Crowd Srl; 1001Pact Italy Srl; 4Crowd SpAI advantages of crowdfunding A crowdfunding bell not only allows you to finance ideas which, most likely, with the sole use of traditional channels would be condemned to remain so, without turning into a product or service, but it also offers multiple other advantages .
Let's look at some of them: investors can become a valuable contribution to improving the product/service you intend to create; the interest in a project on the part of investors can attract the attention of bigger fish, such as venture capital funds; on crowdfunding platforms transactions are transparent; in addition to being a fundraising tool, crowdfunding is also a marketing tool that allows you to obtain great visibility; crowdfunding allows you to create lasting relationships, which could be useful in the future for raising new funds.
Choosing to raise funds online through crowdfunding can also have disadvantages.
Since a large number of people are involved in the project, promoting it becomes extremely important and requires a lot of energy, which is why it may be more stressful.
Furthermore, the obligations and responsibilities are greater since part of the profits will have to be shared with investors.
Also worth taking into consideration is the strong competition that characterizes crowdfunding platforms on which, in fact, it is not always easy to get noticed.
In any case, it is an innovative approach to creativity and entrepreneurship which has represented and can represent for many the only opportunity to emerge and realize their own project.