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Did you know that there are different types of crowdfunding?
The term “crowdfunding” has gained popularity in the past couple of years, but not many people know that there are different types to it.
Below are the different types of crowdfunding you should know if you are planning to start a project or planning to fund some interesting projects.
In a donation-based crowdfunding project, People give money to a project or a company with nothing in return. That’s why it’s called “donation”.
Here’s an example. You need specific equipment for your company and some individuals funded you to support the purchase but with nothing in return. It’s often seen in a project such as raising money more covering medical expenses or an unexpected financial crisis.
This type of crowdfunding is where the money pledged by backers is a loan and must be repaid-with interest by a certain deadline.
It is also called peer-to-peer lending (P2P) and it is one of the most popular options. It’s pretty similar to the traditional method of getting funds, which is going to the bank.
In this type of crowdfunding, donors receive something in return, depending on the amount they’ve donated.
For example, if you are a hotel owner trying out for reward-type crowdfunding, you can prepare original amenities or a special exclusive coupon. If you are an artist, you can receive funds and return it by drwaing incredible drawings. One example of a platform that provides rewards-based crowdfunding is campfire – a service in Japan.
Common rewards are – handmade items, prized donated by partner companies, or free products or services.
Equity-based crowdfunding allows small businesses or start-ups to give away a portion of their businesses in exchange for funding.
Depending on the amount the donors have donated, the shares would be different. It is somewhat similar to how common stock is bought or sold on a stock exchange. It is also similar to venture capital as well.
Usually, equity crowdfunding requires large fundraising minimums, typically into thousands of dollars.
Businesses can share some portion of the profit with the crowd in return for funding now.
Some projects are a combination of different types of crowdfunding. They mixed it up to find the most effective way to grow their business.
Real estate Crowdfunding
This is a pretty new way of crowdfunding. Using this type of crowdfunding, investors can contribute much smaller amounts of money compared to typical real estate investing. It usually starts from $5000.
Now you know the different types of crowdfunding! Now it’s time to post your projects and start preparing! Usually, the donation-based crowdfunding is the best. It doesn’t require you to give back the money, and a lot of people do help you fund for your project.
There’s always a flipside to everything, so make sure you know the pros and cons of each crowdfunding methods.
Tune in for more information about crowdfunding! We are here to help you succeed in getting funds for your cool projects!