What is Crowdfunding and How Does it Work?

Crowdfunding is a way to raise money for a project or investment by pooling money from a large number of people. Hence the name: crowdfund (the fund is comprised of a crowd of people).

The thing about crowdfunding is that you can do it for all sorts of creative projects. This includes crowdfunding for school tuition, for personal expenses, for nonprofit organizations, or even for personal expenses.

The reason why crowdfunding is so ground-breaking is that in the past (in the United States at least), it was very hard to invest in entrepreneurial projects unless you yourself were an owner already, or you had a relative who was one of the founders (or was in your personal network), or you were a venture capitalist.

When you go to the various sites, you’ll find tons of private companies looking to raise money for their next project. They could be people offering real estate projects, start-ups, even masterworks of art!

Usually, there will be a little brief, some pictures, a timeline for the investment, and also the expected IRR. The IRR is a projection of how much your total return might be, over a particular time period, when investing in a particular project.

Of course, like with most things in life, there are both advantages and disadvantages to crowdfunding (compared to other investment options). It’s always important to weigh the pros and cons of any financial decision before jumping right in.

You don’t need a whole lot of money to get started – Something great about this kind of investment is that most online crowdfunding platforms set a very low minimum investment threshold.

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