Crowdfunding is a method of raising funds for a project from a large number of people or a group of people (translated as crowd and funding) to implement business ideas or cultural projects. Crowdfunding is most suitable for investment.
There are special platforms that help with raising investments for the implementation of social projects and business ideas. There are several types of crowdfunding, mainly differing in the method of settling accounts with investors:
- Pre-order model - this is making a prepayment for a product for which funds are being raised to promote it;
- Non-financial reward - this is the return of investments, no payment is provided, and various merchandise, concert tickets, invitations to events, and others can serve as payment;
- Charitable method - here it involves donating to an idea, and no return is provided;
- Attracting shareholder capital - the investor becomes a shareholder in a new company, and the debt method involves returning the money with interest, similar to regular lending.
Crowdfunding Fraud
Crowdfunding is a very profitable business, so crowdfunding platforms are seeing activity from scammers who try to attract investors with fake projects.
In the situation with investors, crowdfunding can be a serious threat of encountering scammers who do not intend to fulfill their obligations to depositors.
When investing in this way, it should be understood that there will be no personal contacts with the project developers, and the information about the project is limited. However, thanks to specialized crowdfunding sites, it is possible to identify fraudulent schemes with projects. Here, moderators work who:
- verify the idea;
- check the adequacy and feasibility of the project;
- verify documents.
They have the ability to block access to the project at any stage of its development. To protect investors, many platforms propose the idea of insuring the investor's finances. If possible, they find the idea's author through social networks and try either to study his profile or contact him to discuss the project.
Fake Projects
The main fraudulent schemes on crowdfunding platforms involve charity. Primarily, working in the direction of charity, scammers provide fake projects that they do not intend to promote and develop. The main goal of fraudsters is to collect investors' money and not return it.
Many pitiful and sad stories have been invented that are used to raise funds, such as:
- helping large families;
- providing treatment for serious diseases;
- developing housing construction for the underprivileged;
- helping sick children;
- organizing charitable events, for example, for people with disabilities.
- many investors, who have additional capabilities and invest in charity, fall into the trap of scammers.
Some scammers may be more prepared and create fake projects that include an idea copied from somewhere on the internet. Moreover, they provide:
- images and graphics;
- the process of promoting the project;
- financing methods.
In most cases, such projects are taken from an internet resource or even the idea is stolen from other developers. This allows scammers to collect investments for the fake development of a project.
Also, most platforms offer to insure investments to avoid risks of encountering scammers and losing money. Verified platforms have long chosen methods of checking project authors and the projects themselves to protect investors and filter out, in the opinion of moderators, non-promising and obviously false projects.
Investor Protection
To provide investor protection on crowdfunding platforms, special requirements are created for service providers who have a license. They need to provide future investors with the main information about investments, which is compiled in the official language of the platform's country:
- they need to have licenses to provide crowdfunding services,
- service providers must disclose their information once a year;
- provide indicators of non-performance of obligations for projects that were offered on the platform.
Crowdfunding Platforms
Specially created crowdfunding platforms serve as a place where project creators post their business ideas - this is a very convenient way to find investors who are looking for new projects.
After placing an offer on the most famous and verified platforms, you should not wait and hope that someone will notice it. It is necessary to make efforts, preparing the project, calculating all possible profits and risks, conducting communication events, and searching for investors. If these actions are not carried out, even the most attractive idea may get lost among the thousands of others on the platform, so the process of attracting investors to the future business project should not be overlooked.