By Fernando Berrocal

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Both crowdsourcing and crowdfunding offer a wealth of opportunity for startups and small businesses; however, despite popular opinion, they are two distinct concepts. By asking your community for feedback, you might implement crowdsourcing as a means to determine what has to be done. Crowdfunding entails investors contributing funding so that an entrepreneur's initiative may emerge. Ultimately, your needs and motivations as a founder form the key distinction between these two concepts.

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Learning how to seek funds is another approach to distinguishing between these different concepts. In this circumstance, the practice of raising money from people who are interested in your proposal is known as crowdfunding. On the other hand, crowdsourcing is a method of enlisting the assistance of a large number of individuals. They can provide you with precise knowledge, commercial know-how, or finished products. We will go into further detail on crowdsourcing and crowdfunding in the upcoming paragraphs. First, let's look at the more detailed definitions of both terms before we explore their differences.

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Crowdsourcing

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This term was formed as a combination of the words “crowd" and "outsourcing". Outsourcing can refer to any number of external ways that an organization fulfills its own internal needs.  It's simple to use crowdfunding to realize your business concept. On the other hand, crowdsourcing is significantly more flexible and has more potential applications. 

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Information may be gathered by the “crowd” in numerous ways.  You can also implement surveys. Other times, you may ask people (in person) whether they have any experience with your area of interest, or make an online post. Bear in mind: "crowdsourcing" these days typically refers to internet participation. There are several uses for crowdsourcing, some of which include:

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• A crowdsourced encyclopedia, Wikipedia receives contributions from individuals globally.

• Crowdsourcing is widely used by the technology development website GitHub to solve technical issues.

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When you crowdsource, various advantages can be obtained.  They include: a shorter development period, speedier time to market, and improved cost-effectiveness in overcoming major obstacles are a few of these. The opportunity for individuals from all over the globe to participate in their unique way has been made possible by the internet, which is one of its many wonderful features.

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• Crowdfunding: This is a fantastic method to spread the news about your business project–and collect money from your supporters through different means. You can utilize social media or other more sophisticated channels, but you'll need to persuade others to support your endeavors with their time and money. Through social media and crowdfunding, the general public may contribute to this marketing strategy. If you need to raise money but don't have access to traditional forms of finance (like wealthy business investors or significant bank loans), crowdfunding is a great option.

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Crowdfunding is a process of obtaining funding from large numbers of people, frequently in return for something. These incentives might range from minor incentives or product discounts for early buyers, to stock options in the firm. Most donation-based crowdfunding projects don't provide contributors prizes.  Some websites, like WeShare, do. For businesses in all phases of development, there are several different kinds of financing rounds–and there are numerous forms of crowdfunding. Entrepreneurs should choose a style that reflects both their objectives and their products. The main forms of crowdfunding are reward-based, equity-based, and donation-based.

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Social media users mostly utilize it to post initiatives they want others to support. Currently, a wide range of crowdfunding platforms serves numerous markets. There are several crowdfunding websites, but some of the more well-known ones are Indiegogo (products crowdfunding), Kickstarter (project crowdfunding), and GoFundMe (cause crowdfunding).

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What distinguishes these terms? 

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A method to raise money for anything is through crowdfunding. Crowdsourcing, in contrast, entails utilizing people's talent and inventiveness. With crowdsourcing, users can search (and find!) almost anything: knowledge on a certain subject or product, a collaborator on a business concept, or a subject matter expert in a skill they need assistance with. 

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In conclusion, both ways of obtaining funds–crowdsourcing and crowdfunding–differ in several ways.  There are limitless examples of both on the web–do your own research to better understand what may (or may not) be appropriate for your startup. It's up to you to see which way benefits your business in the long run.

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Ready to bring your startup to the next level? Apply to MassLight’s next batch. MassLight supplies capital and a dedicated tech team. We take equity in return. Have questions? Refer to our FAQ page.

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