Crowdfunding is raising funds from small amounts from multiple backers. It’s been around for centuries, even the plinth for the Statue of Liberty was crowdfunded. With the adoption of computers and new legislation, it has become mainstream. But did you know there are at least five different types of crowdfunding?
Thank you for reading this post, don't forget to subscribe!The first type is donations crowdfunding. This is when a group of people come together to support a cause or purpose, such as through platforms like GoFundMe or Fundrazr. Charities and not-for-profits are finding donations crowdfunding to be an effective way to engage a wider base of donors and raise funds.
The second type is rewards crowdfunding. Backers receive a tangible or intangible reward for their contribution, such as early access to a product or a discount on the final price. This type of crowdfunding is great for those looking to manufacture a product from a prototype or conduct market research, and platforms like Indiegogo or Kickstarter are popular options.
The third type is peer-to-peer lending. In this model, a group of backers invest in a company or group of companies with the expectation of getting their money back plus a return. This allows people to invest in early-stage companies and reduce risk by diversifying over multiple companies. For companies, this is a way to access capital without giving up ownership, making it a great option if you know you’ll be making revenue soon.
The fourth type is royalties crowdfunding. Backers invest in a company and receive a set percentage for each sale of the item until the amount is repaid plus an agreed-upon amount. This type of crowdfunding is commonly seen on shows like Dragon’s Den or Shark Tank.
Finally, equity or investment crowdfunding is when backers invest in a company and receive equity in return. Platforms like Crowdcube or Republic allow companies to gain access to capital while also gaining a group of advocates who believe in their vision and can be more patient than traditional investors.
When considering crowdfunding for your organization, it’s important to understand the different types available and which one is the right fit for you.
Take our ‘GetStarted’ introduction to crowdfunding course with a 7-day free trial. Learn more about each type of crowdfunding and determine which one is the best choice for your needs.
