Crowdfunding can be defined as the financing of a project through small contributions from a group of people who come together with the idea of ​​starting up a business project.

Nowadays, starting up an idea, a company or developing a product can be very expensive. Not all companies and entrepreneurs have the financial capacity to meet the development and start-up costs. To obtain the missing capital, the concept of Crowdfunding has been created.

But it is not only used to promote the economy; contributions can also be made for social purposes, to help people in need of financial help. Therefore, we can divide crowdfunding into two categories. Social purposes (helping a family with a health problem, for example) and those whose sole purpose is to increase investment.

These initiatives are proposed by companies, individuals or non-profit public entities. They advertise the project for which they wish to raise funds. And it is the investors who decide whether to enter the project or not.

This type of investment is relatively new and there is no legislation that defines a clear legal framework. There are many projects that are made with the simple objective of getting money, which they then do not spend (there are thieves everywhere).

Crowdfunding has some characteristics that no other type of investment has:

• It is a global system: A person anywhere in the world can use this system. There are no longer barriers to accessing the financial and investment system.
• Open to a large number of participants: It is no longer necessary to have a significant amount of capital to invest, with a small amount of money we can start.
• There are so many open projects that finding one that does not provide the confidence to invest in it is easy.
• All projects offer a profit if the project develops as planned. In projects that are non-profit, our reward is the satisfaction of having done good, of having helped humanity to be a little more human.
• It is a way for small companies to grow. If they are very small, traditional banks may not give them the capital they need.

But not everything is good, there are always dangers that we must be aware of:

• There are companies that provide a platform to publicize the different projects and manage the contributions of the participants. You have to be very careful because they charge commissions and fees for their service (it's normal, nobody works for free). But if these commissions are very high, they can greatly reduce profits, turning a good investment into a failure.
• The project sponsors can take the money and run away. It is not normal, but since there are so many open projects, it is sure to happen. Investigating the people behind the project is a way to avoid being scammed.
• There are projects that start, but do not finish. They are not completed for various reasons, insufficient investment, unexpected expenses, technological limitations, etc. And our investment is lost.
• Since it is a global investment, the legislation of each country can mean that we cannot recover the investment or the profits. It is better to invest in national projects.

There are several ways to obtain benefits

• Those that are for non-profit purposes, the benefits do not exist. They are emotional.
• A fixed percentage on the deposited capital. The same way as when we buy public debt of our country. At the end of the period they give us the interest.
• If the company is large, they can give us shares of the company. This way is not very common to find. Large companies have economic resources and banks lend them what they need.
• Royalties: A small part of the benefits is obtained each time the product that we have helped to create is sold. It can be help to discover a vaccine and each time it is placed.
• They can give us gifts, VIP services, etc. This way is rarely used. We all want something more than simple gifts for leaving our money.

I personally invest in real estate crowdfunding, but at a local level, it is better this way. A small project to renovate old houses to then sell. I know all those who participate, the company that is rehabilitating the house and the entire development of the project. And it works, this is the third one we have renovated. The company that is refurbishing it is the one that created the project. With my personal experience I want you to see that crowdfunding can be done among a group of friends with clear ideas.

I first published this article on the Coinpayu website in its articles section. That section no longer exists.