5 most popular types of crowdfunding
Posted: Tue Dec 24, 2024 6:25 am
The days when lack of money was an obstacle to running your own business are long gone. Crowdfunding has somehow become a phenomenon in the 21st century. The idea of crowdfunding has developed at a rapid pace and, surprisingly, has been easily accepted by society. Thanks to its rapid growth, we now have several types of crowdfunding, which we can use depending on the needs of our product and target audience.
Types of crowdfunding – index:
Equity-based crowdfunding
Rewards-based crowdfunding
Pre-sale crowdfunding
Debt-based crowdfunding
Donation-based crowdfunding
Types of crowdfunding – summary
Equity-based crowdfunding
The first financing option for businesses is equity-based crowdfunding, which is also known as investment crowdfunding. As the name suggests, it is a certain way of investing money. The concept is relatively young , having only benin whatsapp number database around for 11 years. This solution is often used by startups all over the world.
Thanks to this, you can bypass traditional ways of raising money for your business. Companies and startups that use equity-based crowdfunding do not offer rewards to their investors, but instead offer shares . The method is so advantageous that anyone interested can participate. Over time, as the value of your business increases, the acquired shares can be sold or distributed as dividends (profit distribution).
Interestingly, entrepreneurs using equity-based crowdfunding cannot raise more money than the amount declared at the beginning of the process. This is strictly related to the number of shares in a given company.
The biggest advantage of equity-based crowdfunding is that it is a modern and advanced form of business financing, and at the same time the best regulated in terms of law. Platforms that offer equity-based crowdfunding are Beesfund, Seedrs and Crowdcube .
types of crowdfunding
Rewards-based crowdfunding
It is considered one of the most popular crowdfunding models. An entrepreneur offers specific goods or services to his donors in exchange for financial support for a specific project . Unlike equity-based crowdfunding, investors here do not receive an equity stake in the company.
In most cases, the value of the reward offered is not proportional to the payment made, and depends on the size of the funds deposited . Usually, it is an item related to a product or service, which, thanks to Internet users, will be launched on the market, for example, a poster or a video promoting the project.
Rewards-based crowdfunding works based on two available models:
flexible financing
all or nothing
In the first case, entrepreneurs do not need to raise 100% of the specified amount, but only a portion of it in order to be paid. However, they are still required to deliver rewards to their investors. Indiegogo, which is Kickstarter's main rival, uses the flexible funding model.
In the second scenario, the creator must raise the full amount by the end of the campaign . Otherwise, the funds raised are returned to the donors. This is how Kickstarter works.
Pre-sale crowdfunding
This type of crowdfunding allows the creator to keep 100% of their stake in the project . This could be the creation and launch of a new technology, product or service.
The American crowdfunding website Kickstarter.com uses the all-or-nothing model.
If the creator manages to raise 100% or more, the full amount is transferred to their account and the project can be launched. However, if the creator overestimates the potential of their campaign, the collected funds are returned to the donors.
In this case, investors help the venture to become a reality on the Internet. They do not receive shares or prospects of further financial profits , unlike equity-based crowdfunding. It is also worth mentioning that Kickstarter takes a 5% commission on the amount raised. If the campaign is unsuccessful, its creator will not be charged any fees.
Debt-based crowdfunding
Debt-based crowdfunding is also known as peer-to-peer lending and crowdlending . In short, this crowdfunding option is similar to a loan and allows you to obtain large amounts of funding without having to give up any equity in your business. In exchange for their money, investors usually require a binding contract to repay the amount they give you within a certain period of time.
Types of crowdfunding – index:
Equity-based crowdfunding
Rewards-based crowdfunding
Pre-sale crowdfunding
Debt-based crowdfunding
Donation-based crowdfunding
Types of crowdfunding – summary
Equity-based crowdfunding
The first financing option for businesses is equity-based crowdfunding, which is also known as investment crowdfunding. As the name suggests, it is a certain way of investing money. The concept is relatively young , having only benin whatsapp number database around for 11 years. This solution is often used by startups all over the world.
Thanks to this, you can bypass traditional ways of raising money for your business. Companies and startups that use equity-based crowdfunding do not offer rewards to their investors, but instead offer shares . The method is so advantageous that anyone interested can participate. Over time, as the value of your business increases, the acquired shares can be sold or distributed as dividends (profit distribution).
Interestingly, entrepreneurs using equity-based crowdfunding cannot raise more money than the amount declared at the beginning of the process. This is strictly related to the number of shares in a given company.
The biggest advantage of equity-based crowdfunding is that it is a modern and advanced form of business financing, and at the same time the best regulated in terms of law. Platforms that offer equity-based crowdfunding are Beesfund, Seedrs and Crowdcube .
types of crowdfunding
Rewards-based crowdfunding
It is considered one of the most popular crowdfunding models. An entrepreneur offers specific goods or services to his donors in exchange for financial support for a specific project . Unlike equity-based crowdfunding, investors here do not receive an equity stake in the company.
In most cases, the value of the reward offered is not proportional to the payment made, and depends on the size of the funds deposited . Usually, it is an item related to a product or service, which, thanks to Internet users, will be launched on the market, for example, a poster or a video promoting the project.
Rewards-based crowdfunding works based on two available models:
flexible financing
all or nothing
In the first case, entrepreneurs do not need to raise 100% of the specified amount, but only a portion of it in order to be paid. However, they are still required to deliver rewards to their investors. Indiegogo, which is Kickstarter's main rival, uses the flexible funding model.
In the second scenario, the creator must raise the full amount by the end of the campaign . Otherwise, the funds raised are returned to the donors. This is how Kickstarter works.
Pre-sale crowdfunding
This type of crowdfunding allows the creator to keep 100% of their stake in the project . This could be the creation and launch of a new technology, product or service.
The American crowdfunding website Kickstarter.com uses the all-or-nothing model.
If the creator manages to raise 100% or more, the full amount is transferred to their account and the project can be launched. However, if the creator overestimates the potential of their campaign, the collected funds are returned to the donors.
In this case, investors help the venture to become a reality on the Internet. They do not receive shares or prospects of further financial profits , unlike equity-based crowdfunding. It is also worth mentioning that Kickstarter takes a 5% commission on the amount raised. If the campaign is unsuccessful, its creator will not be charged any fees.
Debt-based crowdfunding
Debt-based crowdfunding is also known as peer-to-peer lending and crowdlending . In short, this crowdfunding option is similar to a loan and allows you to obtain large amounts of funding without having to give up any equity in your business. In exchange for their money, investors usually require a binding contract to repay the amount they give you within a certain period of time.