Raising money is a problem that everyone, business owner or not, can understand.
Crowdfunding gives us a way to connect with one another in a more immediate way, and with a farther reach than ever before.
I would venture to say that the majority of the people reading this has done at least one of the following:
Supported a something-a-thon (or been the “supported” party)
“Left the change” in a convenience store pledge box
Bought/Sold Something at a craft fair
Participated in a Telethon
Applied for a Loan/Grant/Scholarship
Bought/Sold Real Estate
In the brick and mortar world, it could be hard to see all of those disparate acts as similar, but the internet helps us to understand that they are all merely facets of the same thing: capital raise.
The key to a successful raise is knowing what the different types of crowdfunding are, how to best utilize them, and what the top platforms are for your particular project.
Here’s a brief overview of the 6 types out there:
Donation Crowdfunding is the least complex to understand. Individuals simply give cash to a charity, a cause, a company or a project. With this type of crowdfunding, the donors will not receive anything, and unless it is an officially recognized charity may not even receive tax benefits.
Contributions made in this category should be thought of as “gifts.”
Reward Crowdfunding is the type that most people think of when they hear the word. This is similar to the donation model, however you receive some sort of reward (such as a discount coupon, a t-shirt, or a pre-ordered product) for your participation. For companies attempting to raise awareness of a new product, this can be extremely lucrative.
Top overall platforms for this have been long-time champs IndieGoGo and KickStarter, but there are plenty of niche platforms out there like TeeSpring, and Patreon to help you stand out from the crowd.
This sort of Crowdfunding lets entrepreneurs raise capital by receiving a loan or advance, which they will pay back. The borrower is required to pay pack the full sum over a predefined period plus interest, usually with the additional surety for the lender of milestones that must be met along the way.
Organizations who prefer to not give up equity stake and have collateral upon which a loan could be reasonably secured may choose to go this route. This is most similar to a traditional business loan.
Equity Crowdfunding allows entrepreneurs to raise capital by selling partial ownership (or equity) in their company at a pre-defined valuation to accredited investors (as defined by the SEC.) There are very strict regulations on this type of crowdfunding, and it is only suitable for specific types of companies.
Real Estate Crowdfunding
Real Estate Crowdfunding is similar to Equity crowdfunding, where instead of a business you are buying land or a physical building or future development and holding the investment until a future sale. These were created to fill a gap in immediate funding that REITs do not, but also do not offer the protection and dividends of those more secured funds.
Royalty Crowdfunding may seem like a new idea, but like the others it has brick-and-mortar roots. Building upon elements from Debt and Equity crowdfunding, in this type you are placing a value on your future earnings and selling shares in that to receive an advance. This works best for media collateral that are set to pay out residual licensing fees.
Have you had any experience with the above sites? Are there any we’ve missed?
Let us know in the comments.