Entrepreneurs can be divided into three types. The first is people who are not afraid to risk their property. The second is those who can persuade an investor to risk money instead of them. And the third type is people who are able to raise funds on a crowdfunding basis, that is, on a charitable basis. It is about the latter that we will talk about.
What Is Crowdfunding
Crowdfunding is a way to raise funds for the growth and development of a project, initiative, enterprise, or program through contributions from a large number of outsiders who may not be associated with either the project itself or professional business investment. For the founder, these are risk-free funds since they are attracted on a charitable basis by people who are not indifferent to a possible project.
In the modern world, funds are collected mainly on online platforms, and philanthropists receive a reward for their contribution – some kind of memorabilia or a certificate for a future product if it can be produced.
In addition to financial assistance, for an entrepreneur, crowdfunding means moral support. Money does not need to be returned, but it must be used effectively so as not to lose people’s trust.
Types of Crowdfunding
There are four common types of online crowdfunding. Let’s describe them following.
Rewards Crowdfunding
The most popular kind of crowdfunding is rewards-based crowdfunding. Setting varied levels of prizes that correlate to pledge quantities is a key component of this sort of crowdfunding. At least three tiers of pledges or awards are available in a typical rewards campaign.
Rewards programs frequently succeed for client-facing, material items that cost less than $100,000 to launch and last one to three months.
Crowdfunding for Equity
The exchange of actual shares in a private firm for money is known as equity crowdfunding. Entrepreneurs can set investor caps, minimum pledge amounts, and other parameters in this type of crowdfunding. They can also decide whether to accept or reject investors’ requests to access their company records.
Equity campaigns often last several months or more and are a good fit for entrepreneurs looking for the capital of $100,000 or more.
Crowdfunding for Donations
Donation crowdfunding is exactly what it sounds like: campaigns raise money by collecting donations without having to offer anything in exchange. The finest campaigns for charity and social issues are those of this nature.
Donation campaigns frequently last 1-3 months and are effective for sums under $10,000.
Crowdfunding for Lending
Entrepreneurs can obtain money through lending-based crowdfunding in the form of loans, which they will repay to the lenders over a predetermined period of time at a predetermined interest rate.
Lending campaigns often last for five weeks or less, which is ideal for business owners who don’t want to give up stock in their firm instantly.