From Crowdfunding to Crowdsourcing: What Are the 3 Differences?

Both crowdfunding and crowdsourcing are important ways of leveraging a large network of individuals to achieve important goals of a business. Though the idea of the two concepts is to focus on sourcing something from the other, their primary objectives are slightly different.

✅ Crowdfunding

As the name suggests, crowdfunding is a way of funding specific business opportunities by asking for contributions from a large group of individuals. Also, crowdfunding can be defined as a form of capital formation that brings together groups or individual entrepreneurs seeking funding. The funding is sought by drawing small contributions from a large number of people who are willing to fund the ventures or invest in the ideas at hand. The practice of raising capital is done via the internet.

Key characteristics of crowdfunding:

• Includes restrictions. It can restrict the sum of money an investor can contribute.

• Involves the transfer of money. Explicitly requests funds from a group of people.

• Leverage online platforms to attract (potential) investors. For example, a Crowdfunding website, company website, or social media can be used to attract and generate investor funding.

• Allows investors to spend small amounts. It allows investors to support a business, individual, or project with small sums of money.

✅ Crowdsourcing

To understand crowdsourcing, let’s go back to history. Where did this term originate, and what is crowdsourcing?

Crowdsourcing is a sourcing model that allows businesses to seek ideas, services, micro-tasks, or opinions from a crowd of active participants on a voluntary or paid basis via the internet. Crowdsourcing can be done across several industries and on many varying levels. The main idea here is to enlist the services of a vast network of undefined individuals to get access to ideas and opinions.

Primary features of crowdsourcing include:

• Enabling new ideas. Crowdsourcing’s focus is on discovering new services or product ideas.

• Leverage large crowds. Employs a large group of personnel to accomplish different pieces of tasks.

• Doesn’t involve the transfer of money. Doesn’t request money from a group of individuals.

• Request direct output. Seeks for input and solutions from an actively involved group of people.

⚡ Differences between Crowdfunding and Crowdsourcing

But crowdfunding is derived from a broader perspective of crowdsourcing. To have a better understanding of the two concepts, continue reading this blog post to examine some of the major differences between the two.

1. Goal

Crowdfunding provides a means by which businesses or individuals raise money by drawing small contributions from a large group of people. It’s a perfect and great means of obtaining funding for new business ventures.

On the other hand, crowdsourcing is a model which focuses on the accomplishment of micro-tasks and obtaining funding offered by the distributed network of personnel voluntarily. It’s the collection of knowledge, ideas, information, and expertise from a group of individuals for some common objectives.

2. Meaning

Crowdfunding is concerned with raising funds from a group of active participants via the internet to fund business ventures.

Crowdsourcing is concerned with reaching out to people and thus leveraging their intellect for problem-solving that does not translate to innovations.

3. The Approach

Crowdfunding entails engagement valuations, collection of opinions, validating an idea (product or service idea), and then embarking on the funding campaigns. The purpose of crowdfunding is to secure financial resources from the crowd.

Meanwhile, crowdsourcing is a (sourcing) model which is concerned with opening up processes of innovation to the crowd to gain value and achieve new models of activities. The activities entailed here are the generation of ideas, gathering of opinions, building community, sharing of knowledge, online distributed work, and funding participation.

📝 The Bottom Line

Both crowdfunding and crowdsourcing are ways of connecting with people online, but for different objectives and purposes. Crowdsourcing deals with gathering a group of individuals to share knowledge, valuable ideas, and wisdom. Thus, it aids in building a better service or product. Crowdfunding is also based on the same idea as crowdsourcing but its purpose is to secure financial resources from investors.