Comparison of crowdfunding services

Crowdfunding is a process in which individuals pool money and other resources to fund projects initiated by other people or organizations. Crowdfunded projects may include creative works, products, nonprofit organizations, supporting entrepreneurship, businesses, or donations for a specific purpose (e.g., to pay for a medical procedure). Crowdfunding usually takes place via an online portal that handles the financial transactions involved, and may also provide services such as media hosting, social networking, and facilitating contact with contributors.

Funding models

Crowdfunding is donation-based fundraising for businesses or creative projects, typically via an online funding portal. Some but not all crowdfunding projects offer contributors rewards, which may differ based on the amount of money donated. Rewards can include copies of a creative work, products created with the funding, special or personalized incentives (such as autographed works or promotional merchandise), or public recognition.

In equity crowdfunding, a crowdfunding approach is used to raise investment capital and contributors receive equity in the resulting business. Contributors may act as investors and receive shares directly, or the crowdfunding service may act as a nominated agent.[1]

  1. Equity-based crowdfunding
  2. Reward-based crowdfunding
  3. Debt-based crowdfunding
  4. Litigation crowdfunding
  5. Donation-based crowdfunding

Equity-based crowdfunding: Before knowing more about this kind of crowdfunding, you should know that equity-based funding is illegal in a country like India. In simple words, it is a joint effort made by individuals to support the cause of other people or any other organizations in the form of equity. This is legal when we consider the United States, where it is mentioned in the 2012 legislation which allows a pool of small investors to come together.

Reward-based crowdfunding: This type of Crowdfunding is also known as the non-equity way of funding your project. It has been widely used for funding campaigns like supporting a free development of software, promotion of motion pictures, aiding scientific research and development of inventions, etc. The people who are funding are hopeful of returns from the project.

Debt-based crowdfunding: This is popularly known as 'Peer to Peer,' 'P2P,' 'marketplace lending' and even 'crowdlending.' Borrowers create campaigns to fulfill their financial needs, and lenders contribute towards the goal for an interest.

Litigation crowdfunding: It is a type of crowdfunding in which the plaintiff reaches out many different people to get funds for a court case; it mostly happens confidentially. The plaintiff asks money either in the form of a donation or gives a reward in return. Later on, if the claimant wins the case, the investor may get more than what he has invested.[2]

Donation-based Crowdfunding: The best example for this would be raising funds from individuals to support personal or social causes.

See also

References

  1. ↑ "Der Treasurer". cfo-insight.com. Archived from the original on 2013-04-26.
  2. ↑ https://milaap.org/stories/crowdfunding
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