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What is crowdfunding

By
DAVID AGMON –
CEO AND FOUNDER OF INVERSPOT


In Mexico, teamwork has always been key and, thanks to the new types of business models that have been introduced, different people have been able to fulfill their dreams and achieve their goals. In the last few years, Crowdfunding, or collective funding, has become one of the best ways to help many people turn into capital allocators, investors, or philanthropists.

Crowdfunding is a collective network for obtaining monetary contributions for financing a project in exchange for equity or rewards. This can be done through investors or backers who are looking for their capital investment to generate a yield.  It is considered to be an excellent alternative for people who have a project or idea in mind and need financing in order to carry it out. 

The purpose of crowdfunding is to collect funds in order to finance projects that are posted on different platforms; these can be cultural, artistic, social or business-related.

There are four types of crowdfunding:

  1. Investment (Equity)

This consists of investing capital in a project in exchange for equity. This type of investment is often beneficial if the project succeeds in growing as expected since it will be able to multiply the money that was invested. Inverspot, for example, is a real estate crowdfunding company where you can obtain average yields of 18% annually. 

  • Loan

This crowdfunding method provides money in exchange for making back the principal plus interest after an estimated period of time. Usually, the person who loans his capital decides how much interest he will receive in exchange for the loan. Yo Te Presto is a company that gives you from $10,000 to $300,000 for a period of 6 to 36 months.

  • Rewards-based

This consists of making a contribution in exchange for a product or service the backer is interested in, and it is usually used for carrying out artistic projects.  Kickstarter is a crowdfunding platform aimed at providing funds to artists, musicians, designers and other creative individuals.

  • Donation-based

This method focuses on goodwill projects, and participation generally focuses on a social cause. This type of financing is frequently used by companies with charity-based causes. Donadora is a digital platform whose purpose is to collect funds safely for personal requirements or for social causes. 

How does it work?

In order to participate in any of the above types of crowdfunding, you must take into account the following:  

As an entrepreneur:

  • Select the type of crowdfunding your project will be seeking.
  • Submit your project.
  • Provide a clear description of the idea.
  • Estimate the funding time.
  • Wait for your project to be evaluated and approved.

As an investor:

  • Familiarize yourself with the types of investment.   
  • Select the type of project you would like to participate in.  
  • Confirm the type of earnings you want (donation, yield or product).
  • Choose the length of time you want to participate. 

Investing your money in crowdfunding platforms is an innovative new way of making your money grow or helping others in a benevolent way.

Camila Subirachs

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