Crowdfunding
is the practice of using small donations from lots of people to finance a
business without using regular channels. These businesses can start up or start
new projects by getting the essential boost to cash flow. Most of these
campaigns take place on online platforms, have predetermined deadlines for when
money can be raised, and specify precise financial objectives.
There
are 4 main types:
Donation:
Donation-based crowdfunding is when people give money to a cause, business, or
individual with no expectation of receiving anything in return. Consider
starting a crowdfunding campaign to buy new equipment for your business. The
only reason anyone would give you money is to promote the expansion of your
company.
Debt:
Peer-to-peer (P2P) lending, a type of crowdfunding, includes debt-based
donations. The money pledged by backers in debt-based donations is a loan that
needs to be repaid with interest by a specific date.
Rewards:
Donors receive something in exchange for their contributions. The rewards vary
according to the size of the donation, which encourages larger contributions.
Participants may receive a T-shirt, the product or service - often at a
discounted rate - based on how much money they contribute to a campaign.
Equity:
While some crowdfunding campaigns do not allow backers to own a portion of the
company they are supporting, equity-based crowdfunding allows startups and
small businesses to give a portion of their business away in exchange for
funding. These contributions are a type of investment in which participants
receive shares in the company based on the amount of money they contribute.
