Crowdfunding has, over the years, earned a charitable reputation, so much that each time the word is mentioned, the first thing that comes to mind is Donations. This is thanks to platforms like GoFundMe, Patreon and Kickstarter that leverage on the sociable character of this practice and the sentiment of humanity to provide support for non-profitable ventures. But there is more to crowdfunding than making sentimental donations on the internet.
WHAT IS CROWDFUNDING?
Investopedia defines it as the use of small amounts of capital from a large number of individuals to finance a new business venture. Crowdfunding is a practice that raises money for individuals to raise funds for their businesses, projects, etc.
SO, WHY CROWDFUNDING?
Ideas are a dime a dozen, but funds are not. There are many ideas that have stalled or even been scraped due to inadequate funding. For many, the only way to access the funds needed to see their projects through would be to raise the money from a number of people.
Depending on the type of project and the intent, crowdfunding can be divided into 4 main types – Donation-based, Equity-based, Debt-based and Reward-based.
1. DONATION-BASED CROWDFUNDING
Donation-based crowdfunding is simply asking for a small donation from a large number of people to raise money for something you care about. It targets the sentiment of the public to achieve its goal.
How Does Donation-Based Crowdfunding Work?
Donation-based crowdfunding is best used to raise money for personal needs as well as community-based projects. You can share your fundraiser with your own network and on social media as a way to amplify awareness and encourage more donations.
2. REWARD-BASED CROWDFUNDING
Rewards-based crowdfunding is typically used to raise funds for a new startup or organization that offers a product or service.
How Does Reward-Based Crowdfunding Work?
With rewards-based crowdfunding, donors can earn rewards based on the amount they donate.
3. EQUITY CROWDFUNDING
Also known as crowd-investing or investment crowdfunding, equity crowdfunding is best for small to medium-sized companies that are seeking a large amount of capital to launch or grow their business.
How Does Equity Crowdfunding Work?
In exchange for donations, donors receive a percentage ownership in the company. This percentage varies depending on the business, and can be a great way for companies to quickly raise funds without the headache of a traditional business loan.
4. DEBT CROWDFUNDING
Also known as peer-to-peer lending and crowdlending, debt crowdfunding is a fast and easy way for both individuals and businesses to raise the money they need when they need it.
How Does Debt Crowdfunding Work?
Debt crowdfunding works by collecting donations with the promise to pay them back at a later date. Debt crowdfunding is usually used by businesses that need capital, and that prefer to pay back the funds rather than give out equity. Individuals also used debt crowdfunding when they need money to pay off a loan or other financial obligation. With a debt fundraiser, make sure to clearly state what the money is needed for and when donors can expect repayment.
WHAT THIS MEANS FOR BUSINESSES
For companies struggling to raise funds, crowdfunding ensures your project and business doesn’t stall and luckily, you have a large list of croedfunding types to explore.
Crowdfunding helps you contribute to the things that you are passionate about or/and for a reward.
Most times, donation-based crowdfunding is the best solution for individuals and sole proprietorships. However, I would recommend other forms of crowdfunding for more structured businesses as this ensures accountability and invites more serious investors to your doorsteps.
And as for investors looking for a space to make some monetary contributions and extra income as a result, most companies employ equity-based crowdfunding measures to approaching investment so you are fairly certain that your investment is secure.
One prominent, emerging, yet obscure form of crowdfunding is Real-estate crowdfunding
How Does Real Estate Crowdfunding Work?
An offshore of equity-based crowdfunding, this crowdfunding method ensures that real estate investors can contribute much smaller amounts of money depending on how much of the property they would like to own. Investors will then receive payouts on an agreed-upon basis, depending on how much revenue the property generates.
WHY REAL ESTATE?
Real Estate Investment comes with a plethora of advantages that are hinged on the nature of the products. It serves a channel for steady income. It is a great place to put your money because real estate value appreciates over time. And because of the positive relationship between real estate demand and GDP, you are sure your money is immune to inflation’s glare.