Crowdfunding is all the rage, with new platforms popping up ever more frequently. Many ponder over it to be the ongoing future of investing, others warn that its risks tend to be underestimated. And then you can find the various kinds of crowdfunding: reward-based, equity-based, debt-based, flexible, fixed and so on. It could all seem bewildering, but like the majority of things the underlying logic is simple.

The most crucial benefit to crowdfunding is that it makes investment in small companies and startups accessible to everybody. For this reason, it's more important than ever for people to fully appreciate this new world, as all of the negative publicity around crowdfunding is basically dedicated to misuse and misunderstanding of the platforms. In this information I'll cover the various kinds of crowdfunding platform, combined with main incumbents in each category, and explain a number of the primary pitfalls that ensnare many newcomers.

But first, a definition.

What's the crowd?

Ordinary, everyday people. And that's what the "crowd" in crowdfunding refers to. You see, raising money is certainly not about business plans or market traction or financial forecasts: it's ultimately about trust. And in life, the larger the chance to be hurt, the more important trust becomes. For this reason, most people don't mind putting a couple of pounds towards sponsoring a charity run or lending a buddy a couple of pounds; there's a general acceptance that you shouldn't be prepared to note that money again, and as such the degree of trust in the person to whom you are giving the amount of money doesn't have to be particularly high. But if somebody asks one to invest thousands of pounds, the specific situation is radically different. For most people, this isn't an sum of money that they may afford to lose. Therefore, most people have now been locked from the investment world where small businesses need thousands of pounds to be invested.

It's therefore logical that the standard routes for founders financing a company have now been channels like loans from banks, high net worth individuals and friends and family. A founder's ability to raise money has depended largely on their collateral in the event of a bank loan, or their personal network in the event of investments from individuals, and contained big chunks of money from a tiny couple of people who trust them and/or have thoroughly vetted them What is StartEngine. The choice - raising small chunks of money from a big number of people - has been largely impossible unless the founder happens to learn hundreds of men and women and is both willing and able to manage the enormous administrative overhead of dealing with so many people.

Enter the internet, having its well-established history of both removing administrative headaches and connecting large sets of people together. Crowdfunding essentially facilitates the matchmaking between ordinary people that are thinking about buying things and ordinary founders who don't happen to possess usage of collateral or large networks of wealthy individuals. The software running the crowdfunding platform handles every one of the administration, while the internet itself provides a vast potential pool of men and women for the founder to market to, at scale.