Crowdfunding occurs when a company, organization, or group of people need to raise funds. The crowd refers to those who contribute to the funds, whether through lending or donating the money, becoming partial owners of the company, or being rewarded in a non-financial way for their contribution. There are pros and cons to each choice, and only your company can decide which is best for you.
- Equity-Based Crowdfunding
Equity-based crowdfunding is fairly new on the crowdfunding scene, and occurs when the company sells stocks to investors. The investors become entwined with the company because if the company succeeds then they’ll see a financial return. This works in two ways: 1) the company benefits from the stock purchases directly, and 2) investors will spend more, or encourage others to spend more with the company, to increase their own financial return.
- Donation-Based Crowdfunding
Simply stated in the name, donation-based crowdfunding is a donation from a person, or group of people, with no expectations of any kind of return. Many do this for organizations they are passionate about. This can even occur after a person passes away, if they left a monetary amount to be willed to the company or organization. While this form of crowdfunding is the most appealing, it is not always common, depending upon the company or organization involved.
- Lending-Based Crowdfunding
With lending-based crowdfunding, companies and organizations can bypass a lengthy process through a bank or other lending organization. Instead, money is loaned to them from individuals or independent groups, with an expected return in investment, plus interest. However, this form of crowdfunding can be difficult to obtain as those who are lending will want to know that they stand a chance of a return.
- Rewards-Based Crowdfunding
Rewards-based crowdfunding rewards those who contribute through non-monetary means. Usually, the company will give their product or services to the individual, either for free, or a reduced price. Nothing needs to be repaid, as long as the company keeps their end of the bargain and rewards the contributor(s).
Which Type of Crowdfunding is Right for You?
Each type of crowdfunding comes with their own pros and cons, and each individual will have to determine which kind offers the best benefits. While an individual or group may make a crowdfunding offer, or even an unsolicited donation, companies really need to do the leg work when it comes to funding, and put themselves and their needs out there.
