After a lot of questions I received, I thought I should outline the types of crowdfunding we encounter. Not all of them are the right fit for your business, though. Only one, maximum two of them may be pursued at all times. And make certain that it aligns with your general funding strategy. Otherwise, you will be losing too much money and time.
The first type I can think of is Donation Crowdfunding. It’s about donating money without expecting a product in return; you just give the money out. This kind of model perfectly fit charities and some social enterprises.
Then we have Equity Crowdfunding. The crowd, or whoever contributes money, gets an amount of shares in the company. This process is legal in the US and US, while it is also expanding in other countries. The platforms offering Equity Crowdfunding are increasing in numbers by the day. Seedrs, CrowdCube, Syndicate Room are some of my favourites. There are others too for more niche Crowdfunding but I’m not going to mention them here. Normally the platform collects the money and then, when the Crowdfunding finishes. And then it distributes the shares. Alternatively, the platform may bring together investors who become a single entity to ‘purchase’ equity. Later stage startups favour this type of crowdfunding.
Another type is Reward Crowdfunding. It is the most widespread Crowdfunding method. Specifically, the crowd receives a product or another reward in return for the cash they offer on the platform. It works like an advanced order of the product that is in the making. Effectively, it is a presell. For example, somebody may be trying to raise funds in order to complete a new product. She/ he promises to post the product to the people who will give funds, once that is finished. Platforms that are very well known for this Crowdfunding are Kickstarter and Indiegogo. On the whole, platforms charge 4-10% of the total income raised on the platform. This method is perfect for innovative products, as it allows the founder to validate them.
Finally, we have Lending Crowdfunding. This is about micro financing, or micro loans (although some of them are substantial). It is about providing a collective loan to the business. The interest rate, the rate ranges between 5-10%, depending on the platform. Micro financing works very well for established businesses with an existing track record.