How can a company finance its operations? The answer to this question used to be trivial: a company can issue shares, which entitle shareholders to assets and profits of the company, or it can issue debt, which the company will have to reimburse in the future, together with the interests, otherwise bondholders can claim the company’s assets. Both financing means involve a claim on the assets of the company and some strict rules the company has to comply with.
Nowadays, these traditional financing means are accompanied by other, innovative ones, sometimes involving nothing more than a vague promise and little consequences if the promise is not maintained.
Some companies consider crowdfunding a way to raise capital, but it is by no means an investment. At most, it could be a terrible investment opportunity if we look at the default rate and at the amount of protection the backer receives.
Should you back a crowdfunding project? Sure, but remember, this is by no means an investment.
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