Crowdfunding: financing a purchase without borrowing

What is crowdfunding?

Crowdfunding is a way of raising private money by giving individuals the chance to finance a project they like the look of. It began mainly with music and with charitable or community projects, and over time spread to all sorts of ventures, including the financing of small businesses.

What kind of project?

It is a tool that lets individuals make a project possible. As such it is not strictly an investment, even though it does not rule out making a return.

Above all it brings a community together around a project. Setting up a cultural centre. Financing a record, a book or a graphic novel. Letting a local restaurant expand. Letting a farmer invest in new equipment. Or making the purchase of a small business possible.

The benefits are not limited to the money raised. It is also an opportunity to give the project visibility, since crowdfunding makes heavy use of web platforms. A way of creating a stir around the project — locally, online, in the press. And above all, of gathering a group or a community.

The four ways of contributing

• Buying shares: the individual becomes an investor and takes a stake in the capital.

• Lending: usually to the company rather than to the entrepreneur.

• Donating: Wikipedia and Mozilla are financed this way.

• In return for a benefit or a reward: preferential rates or free services, for instance.

In practice

You need a project that rallies people and appeals to a clearly identified audience. Backed by a file with a business plan. A clear, easily understood offer. And a communication strategy, built on the web, capable of reaching a wide audience.

To which must be added, of course, a range of administrative and legal arrangements giving everyone the necessary guarantees.

Nady Bilani