Crowdfunding by definition is when a group of organizations, businesses or individuals fund a venture or a project using small donations from a large number of people. After receiving a significant cash infusion, ventures can take off or even set new projects in motion. Internet platforms are the usual gathering places for these investors and projects are usually launched online, with disclosed monetary goals and a set time frame. In this article, we will tackle the different types of crowdfunding that can be utilized for your business, along with the many benefits of this type of funding method.
Four types of crowdfunding can be used for your business ventures and each of them receive money from interested donors. There is donation-based, equity funding, debt based funding and reward-based funding and we will break down each and every one of them below.
– Donation: Donation based crowdfunding is when a company, campaign or a person receives money without the obligation to return it. These individuals donate the money to you out of support and in hopes that the company/project/person they are funding will experience growth and abundance. Contributors give money without receiving anything in exchange for it.
– Debt: Debt-based donations are based on P2P (peer-to-peer) lending, which is only another form of crowdfunding. In these kinds of donations, backers pledge a certain amount of money as a loan and expect to be repaid with additional interest and all this by a certain preordained deadline.
– Rewards: This type of crowdfunding is based on donors receiving a certain reward in return for their generous donation. These rewards can vary in size and type, which encourages higher financial contributions. The amount of money invested in a specific campaign, company or person by crowdfunding participants, serves as an evaluation system based on which rewards are given to crowd funders.
– Equity: Last but not least, some crowdfunding campaigns do not support backers owning portions of a certain company, equity-based crowdfunding occurs when a startup or a small business gives away a fraction of their business in exchange for capital. These types of donations are an investment indeed and participants receive company shares in return, all based on the amount of money they contributed.
Whichever type of crowdfunding you choose, you should be aware of the multiple upsides of putting your money into a crowdfunding project, as an investor. Firstly, low risk ventures are always highly appealing to investors and crowdfunding offers just that. Given the fact that crowdfunding is not a part of the financial market, the state of the economy or the stock market does not affect or impact their investments whatsoever.
Investing in a crowdfunding campaign is relatively easy, since investors can put their money into a project which can be chosen and executed directly, online. In addition to that, there’s flexibility and multiple direct payment options and investors can use crowdfunding to further diversify their investment portfolios. Lastly, equity crowdfunding enables investors to fund multiple projects simultaneously, which helps further expand financial opportunities.