“Crowdfunding as an idea itself isn’t new- brands have been doing it since the dawn of time”, quotes Amanda Palmer- musician, song writer and the author of bestselling, The Art of Asking. Science, Books, independent films, technological ideas, journalism, business concepts, etc., have been often backed-up by various crowdfunding platforms, since times we have known. Crowdfunding is also raising hopes for financially exhausted people, burdened by medical bills. Popular Crowdfunding Platforms has emerged as one of the great ways to provide your ideas, the required champagne start.
As the name suggests, Crowdfunding is a form of financial arrangements made by raising funds from groups ranging from small groups such as friends or family to larger groups such as investors or common public. Traditionally, the idea or product is presented to these groups to grab their attention. if they are interested, the people either buy shares of the company or pre-book the idea or donate non-profit, in exchange of monetary values. Crowdfunding platforms bring the required crowd and create necessary conditions in favor of initiators to present their offerings which are allowed on the platform.
Types of Popular Crowdfunding Platforms
There are lot of different crowd-funding platforms which are classified in ways which they adopt crowdfunding models and the benefits they provide to the fund-raiser.
Category 1: Internet & Non-Internet mediums
Although, Off-line Crowdfunding has a limited reach, it is an ancient form which still exists. The participation of investors is limited, mostly informed through newspapers, brochures or self-advertisement. Majorly, there is a reliable group participation willing to hear initiator’s product, idea or charity based presentation.
Crowdfunding Sites, provide a wider reach of attention, which can be utilized by startups, profit & non-profit organizations, businesses or individuals. These sites provide the world-wide network of interested folks, in-return demand for a certain percentage of total money raised. Some sites ask for a small participation fee beforehand.
Category 2: Monetary types
Crowdfunding can be further classified under Reward-based, Debt-based, Donation-based, or Equity-based platforms. Here is the full description of different crowd-funding platforms and their benefits.
Donation based crowd funding
Donation-based crowdfunding platforms are basically those charity platforms where presentations are based on a social, personal, medical or business cause. Here the backer “donates” not “invests”. Medical bills crowdfunding, is a form of donation based crowdsourcing, which saved many lives and bought monetary help to financially exhausted people.
Equity based crowd funding:
This crowdfunding platform deals in shares and equity, as a return of investment to its funders. Equity-based crowdfunding, also referred as crowd-equity involves monetary regulations and securities, with less number of funders. Entrepreneurs are benefitting from this crowdfunding platform since huge funds are arranged by small number of groups, therefore the possibility of incurring debt from financial institution is minimized. The funders are benefited by owning a part of the business the fundraiser wishes to project.
Debt based crowd funding:
Debt-based crowd-funding popularly known as “marketplace lending”, has become a big revolution for all the start-up businesses. This is similar to a traditional bank loan, only that pitchers apply online with payment or non-payment of entry fees and get their background verified by operators online. Once, they are all good to go, investors lend them money and get benefits from interest on the given loan. There could be one to many investors to fulfill the target of given loan. The operators charge their commission in order to regulate such crowdfunding platform. In debt -based crowdfunding the borrower is profited by the fact that he does not need to share his dream business with any other investor in exchange of funds.
Reward based crowd funding
This is one of those crowdfunding techniques where the funders, receive direct rewards or incentive, based on the amount of monetary backing they provide to the fund-raiser. Basically, a product is pitched through presentation, social message, seminar, video, email, etc,. That promotional fundraising document or video request to back the project financially through Internet channel or other non-internet channels, and in return expect some rewards. This reward based platform is divided into three types, mentioned below:
The backers who contribute in small monetary numbers, are often rewarded with small thank you cards, discount coupons or name-flashes over fund-raiser’s websites.
The contributors who source money in fairly good amounts, receive special services from fundraiser’s end. Memberships, free subscriptions, free maintenance services for a year or two, heavy discount on product release, etc, are some of the rewards backers receive as a return gift policy in this crowdfunding technique.
The funders who pay the largest, get to enjoy the best perks provided by the initiators. For example, A company pitches an idea and request folks to invest. In return, company promises its first five highest paying funders with pre-orders of the product they are pitching, before its release into the market. This is one form of reward system mostly incorporated by agencies arranging crowdfunding mobs.
“Whether you’re raising money for a cause, a personal need, or a project, most crowdfunding sites center on you hitting up people you already know. These sites make it easier to tap your social network for funds, but only the most compelling cases inspire support from strangers.” quotes Charles Best, Donors Choose-CEO and founder.
In today’s day and age, Crowdfunding has become an easy and simple way to raise funds for your next venture. Companies and individuals now stand at an equal footing when it comes to raising funds. The trend is slowly shifting from who you know in the business to how well you market your product to the end consumer.