The internet has not only changed the way we make business, but also the way we get the necessary funds to start a business.

If you are about to undertake a project and need the financial resources to that end, you are faced with two choices: You may borrow or get financial partners; right? Luckily, today new options are arising, among them, crowdfunding.

Say what?

The term “crowdfunding” has widely spread over the last five years and has become more and more frequent to hear. Crowdfunding refers to a collective financing model through open calling.

It may sound complicated, but in all actuality collective funding is a very simple cooperative system which allows to gather a considerable sum of money among many people in support of a determined initiative. In exchange for their participation in the project, contributors receive non-monetary rewards, which range from a personalized “thankyou” on the creator’s website, product pre-purchases at a lower price prior to launch, even the possibility to get a job position in the future company.

All of this is carried out through web sites on which the entrepreneur outlines his project and defines the amount he needs to carry it out, as well as a deadline. When the project reaches 100% of the indicated amount before the expiration date, he is awarded the established amount. In case the project fails to reach its goal within the fundraising period, the creator does not receive any funds and all contributions are refunded. In this model everybody wins, since the entrepreneur or creator funds his project and shares his idea with an increasingly larger community. Contributors choose the projects or products they wish to support and additionally, creative entrepreneurship and innovation of new entrepreneurs are incentivized. In turn, the platform receives a small percentage of the funds raised.

How did this idea come to be?

Since democratization of the internet started, open projects began spreading in which developers opened their information publicly and selflessly in search of better solutions to certain problems. Hence the term Open Source. In view of the success reached and the need to continue their work, they began to ask for donations. Public response was greater than expected, and between creators (requiring funding) and users (demanding creative projects and paying for them) crowdfunding or collective funding came to be as a new financial choice for creative, innovative projects.

In developed countries this model is not unusual for entrepreneurs on web sites such as kickstarter, while in Mexico it is just taking off. Some sites exist, such as fondeadora.mx and idea.me, which are proof that this financing model does work.

Cross-post: http://amiagencia.com/blog/business/what-is-crowdfunding/