What does crowdfunding actually mean? How does it differ from crowdinvesting? And what is important? We show you what you should consider when it comes to digital crowdfunding.

With crowdfunding, many donors give small sums. These have the character of a donation and are intended to help realize beneficial projects.

The consideration is usually material goods or privileges, but it is not about returns.

Before participating in crowdfunding, find out what happens to your money if the crowdfunding project fails or does not come to fruition.

caution the term “crowdfunding” and “crowdinvesting” are often mentioned in the same breath. Therefore, check whether you would like to donate or invest, and also what the project donor actually means by this.

Crowdfunding: What is it actually?

Crowdfunding is a form of financing certain projects and ideas. Projects are presented via special crowdfunding platforms and supporters, especially donors, are sought. Projects can be a film, a book or software, for example. The basic idea is that a large number of small financiers (the “swarm”) realize a project together. It’s not about returns.

Crowdfunding – crowdfunding of creative projects

In the early days of crowdfunding, projects in the social, art, music, film or literature sectors were mainly financed. The crowdfunding instrument is still used today primarily by actors who cannot raise the necessary funds in the traditional way – for example through loans – or perhaps do not want to do so.

Through crowdfunding, for example, fans of an author or musician can financially participate in the next work and thus support it – or in many cases make it possible in the first place. There are hardly any limits to the imagination. For example, world travelers have their trip around the world paid for, about which they then write a book.

“Thank you” for crowdfunding donors

Participation in crowdfunding is comparable to a donation. In return, you as a supporter do not receive interest or dividends, but rather goods or certain privileges. For example, you get a signed copy of the book or exclusive insights into the new film before it is released.

An honorable mention – for example in the film’s credits – is also conceivable. Supporters of a band, in turn, can hope for access to the artist’s backstage area.

In some cases, donors also receive a donation receipt and can thus take advantage of tax benefits. The benefits granted are often staggered according to the amount of the donation. Those who give more money receive a more exclusive return.

Crowdfunding and crowd investing – what’s the difference?

Because financial participation in crowdfunding is classified as a donation, this type of participation is not a classic investment.

Although crowd investing is also often referred to as crowd financing and offered via internet platforms, it is fundamentally different from crowdfunding.

With crowd investing, investors expect to get back the money they have made available and also hope to achieve high returns even with small amounts. Crowd investing is a form of investment with the risk of total loss.

Since the two terms crowdfunding and crowd investing are often used synonymously in practice, it is all the more important to take a close look at both the project and the project sponsors as well as the internet platform before making a possible

The information on crowd investing for consumers is often inadequate. This was revealed by a study by the market watchdog Finance.

Recognizing illegal pyramid schemes

Under terms such as “crowdfunding”, supposed business models can occasionally be found on the internet that present themselves as simple, reputable and high-yield investments. However, there may be illegal pyramid schemes behind them, in which investors risk their entire investment. We explain how you can recognize pyramid schemes in the linked article.

Crowdfunding: what you should look out for

Before donating via crowdfunding, find out what happens to your money if the project does not come to fruition. Will you get your money back?

Check what happens if a crowdfunding project fails. This is particularly possible with new and young companies and projects. Information on this can usually be found in the terms and conditions of the crowdfunding platforms.

Be aware that participating in crowdfunding generally does not give you any say or influence on decisions.

Make sure you get a donation receipt for your money. This is the only way you can take advantage of the tax benefits of crowdfunding.

read more: Break the cycle of poverty for children