What Crowdfunding is and how it works: 5 key elements

Crowdfunding, Blockchain, Smart Contracts, Private Equity, Venture Capital. In short, definitions in English for all institutions.

This phenomenon also deserves attention which, apart from some manifestations of silly exhibitionism in the public use of phrases or nouns to give an unsolicited proof of knowledge, more or less, of a foreign language, more often than not, as in this case, the reason (and therefore the justification) lies in the fact that the institutes in question are born and evolve in an Anglo-Saxon or US environment, where the English language is spoken, but above all, it is within the ambit of a legal system (different from ours, influenced by the written law of Latin origin) which find their source and inspiration and which is known by the name of "Common Law", a right that is more influenced by the reality of the facts and by the civil society that evolves over the various eras and which is also influenced by the economic components and entrepreneurial dynamics.

In other words, both Crowdfunding, as well as, for example, the topics mentioned above, are topics that arise, are used, evolve, and also receive a legislative framework that regulates them in a foreign environment with respect to the Italian one, which however implements them and appreciates their usefulness, so much so that, remaining identified with the English idiom with which they were disseminated, they are the subject of specific laws and regulations within our legal system, synonymous with mental and juridical openness towards tools that can be of help and support together with the more traditional ones on the subject also in our country.
Let's see the first mentioned in the list: Crowdfunding.

But what does Crowdfunding mean and what is it?

Crowdfunding is made up of 2 words:

Crowd

Or crowd, a multitude of people who are in fact opposed to the individual, who count and act as a group, a new economic model based on Sharing, Collaboration, and the exploitation of unexplored or little-used resources.

Funding

Instead, it stands for funding, fundraising; two nouns that read together lead to the definition of Crowdfunding as "collective financing" which draws its initiative from the need to support a project, a worthy work through the sensitization of the crowd which, adequately informed and stimulated, is available to give the own money for the achievement of the aim declared at the beginning by the promoters and/or organizers of the initiative.

Ice Bucket Challenge: a Bucket of Ice Water on the Head

To give an example which was, as they say, "viral" in 2014, and which can give the measure of the Crowdfunding Phenomenon, I recall the famous bucket of ice water whose gesture was linked to the challenge that was accepted and which was witnessed by the filming must be transferred to Social Networks, with an invitation addressed to at least two other friends and with an indication of the offer that had accompanied the icy launch.

The underlying operation to what has been described above was precisely Crowdfunding, an initiative of the American Association on Multiple Sclerosis, aimed precisely at raising funds for the study and research of this terrible disease.

Well, taking a cue from this fundraising campaign, we can identify the basic elements that are needed to give life to Crowdfunding, used as a new communication channel used by the market and intended for the crowd (crowd) as a fundamental resource for realizing ideas and projects that require financing and economic resources, difficult to find in the traditional channels of the banking world, too tied to the systems of evaluation, merit, guarantee for the repayment of the loan.

Indeed, with the operation of the bucket of ice water we find the 5 basic elements that characterize Crowdfunding:

1. the crowd, the multitude of solicited subjects (crowd) which, as connected to social networks, is catalyzed, for a just cause, to emulate those who first experienced that act and invited the crowd to follow them
2. through that gesture, the awareness of working for a meritorious work was conveyed, i.e., the collection of funds to be allocated to scientific research
3. the essential use, because capillary, constant and persuasive, of a technological platform where the initiative was presented and disseminated, if only we consider that in 55 days about 2.5 million videos were posted on YouTube and 30 million posts on Facebook
4. the involvement of the crowd (crowd) through the participation of important personalities from the world of social media, cinema, politics, and sport ...., so that the recipients were also the highest number reached
5. finally, the result was obtained, which was 114 million dollars in a limited period of 55 days!

As in the case of the Ice Bucket Challenge just described, the Crowdfunding Phenomenon, i.e. the collection of funds is often, and increasingly, conveyed through the aid of the Web cc, where the initiative is illustrated and circulated, which stimulates and determines the mass to make cash payments for the achievement of the purpose, to be made in telematic platforms set up for this purpose, which ensure transparency and effectiveness.

But which initiatives can be financed using Crowdfunding?

The nature of the initiative to be financed is the most disparate: from charitable initiatives to cultural and scientific ones.

The experience has therefore led to the identification of some forms of Crowdfunding, each with its own name, also here in the English declination. The 3 Main Forms of Crowdfunding are:

• Donation Crowdfunding
• Reward Crowdfunding
• Lending Crowdfunding

Let's look at them briefly and in detail one by one.

Donation Crowdfunding

The term Donation Crowdfunding identifies a donation of funds to organize charitable projects whose return is generally to feel gratified for the action performed and therefore to be part of a recognized social value.

Reward Crowdfunding

Reward or Reward. Reward, therefore, means the reward, even if not monetary, for having participated in a project, used in the hypothesis in which it is intended to test a product or a patent.

Lending Crowdfunding

Lending, i.e., a loan, which is made in favor of the company that uses it for the realization of the project and from the profits and earnings that will derive from it, will reimburse those who financed it, the loan received, increased by interest, fixed in advance. It is inherent in the definition, the risk that the investor must calculate in the event that the deal fails to generate the profits assumed on the eve.