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What Is Crowdfunding? Its Types & Role in Business & Innovation

(Image Credit Google)
image credit - sec.gov Every business, new startup or any new innovative idea somewhere faces a lack of funds at some point. That's where crowdfunding plays a major role to support the new ideas and connect to the interested market or potential buyers. Crowdfunding is an approach to get money for businesses and projects. It makes it possible for organizations to get money from a lot of people through online sites. Crowdfunding is often used by new businesses or businesses growing as a different way to get money. It is often used by new businesses or businesses growing as a different way to get money. It is a creative way to get money for new businesses, projects, or ideas. It can also be a way to bring people together around what you're selling. Using the power of an online group can also help you learn more about the market and find new customers.

Types of Crowdfunding

There are different kinds of crowdfunding, which are described below. 

Peer-to-peer lending -

The crowd gives money to a business on the condition that the money will be paid back with interest. It's a lot like borrowing from a bank, except that you borrow from a lot of people instead of just one. Kiva, Prosper, and Upstart are three sites that make it easy and clear to invest in peer-to-peer loans. [caption id="attachment_191986" align="aligncenter" width="861"]p2p1 image credit - ifund.lv[/caption]
  • Kiva is an alternative investor that helps startups and small businesses get small loans. It's a non-profit platform for crowdfunding that helps underserved areas get more business funding. The company doesn't say how long it's been in business, how much it makes each year, or the minimum credit score.
  • Prosper Marketplace is the first peer-to-peer lending marketplace in the United States. On Prosper, borrowers can ask for personal loans, and investors (individuals or institutions) can pay between $2,000 and $50,000 per loan request. 
  • Upstart is an AI-powered lending platform that works with banks and credit unions to give consumer loans based on non-traditional factors like schooling and employment.

Equity crowdfunding -

Selling a piece of a business to a group of investors in exchange for money. The idea is like buying or selling common stock on a stock market or with a venture capital firm. StartEngine, SeedInvest, and AngelList are the top 3 sites for equity crowdfunding. [caption id="attachment_191985" align="aligncenter" width="1024"]equity-crowdfunding1-1024x324 image credit - corporatefinanceinstitute.com[/caption]
  • StartEngine is one of the biggest venture crowdfunding sites. It uses Reg CF and Reg A+ to let anyone buy a stake in a new company for as little as $100. 
  • SeedInvest is the first equity crowdfunding tool to let people who aren't "accredited investors" invest in companies on their site. This gave campaigners a wider range of people who might be interested in their projects. 
  • AngelList is the only crowdfunding site that also serves as a job board for people looking for work at a company. 

Rewards-based crowdfunding -

People give money to a project or business to get something other than money in return, like goods or services, at a later date.  [caption id="attachment_191984" align="aligncenter" width="655"]what-is-rewards-based-crowdfunding-e1618390977705 image credit - crowdfunding-platforms.com[/caption]
  • GadgetAny is different from other crowdfunding sites because it is only for gadgets and tech products. GadgetAny.com says it will give tech innovators a place to raise money for their ideas without charging any fees. 
  • Kickstarter is a way for creative and artistic projects to raise money. People from many different areas, such as music, art, technology, dance, and games, use this platform to get financial support for their projects. 
  • Indiegogo is also one of the first sites in the US to let people raise money for projects. Its main purpose is to help people raise money for businesses, charities, or new businesses. 

Donation-based crowdfunding -

People give small amounts to help a charity project reach its bigger funding goal, but they get nothing in return, either financially or in kind. [caption id="attachment_191982" align="aligncenter" width="611"]csm_EN-crowdfunding-donation-based_80786aed2d image credit - ionos.com[/caption]
  • GoFundMe is an American crowdfunding site that is run for business. It lets people raise money for a wide range of things, from celebrations and graduations to accidents and serious illnesses.
  • YouCaring is a website where people can raise money for personal, medical, or charitable reasons. In 2018, YouCaring is bought by GoFundMe.
  • Give Forward gives coworkers many ways to help causes and groups they care about and make a difference where they live, work, and beyond. The goal of the project is to give every coworker the tools, programs, and rewards they need to take action today and make a difference tomorrow.

Profit-sharing / revenue-sharing -

Businesses can now get money from the crowd in exchange for a part of their future profits or income. [caption id="attachment_191981" align="aligncenter" width="800"]Revenue Sharing vs image credit - g2.com[/caption]
  • Forumcoin lets people sign up for free, ask and answer questions in different threads, and make points. Also, members can ask to join the Article Writers community and earn more points. 
  • DigitalCoin pays you to answer, ask, and recommend other members. You get paid once a month based on the number of DG coins you have. 
  • Answeree is another site that lets people make money by answering questions, coming to the site, and asking questions. Everyone is welcome to join the Answeree platform.

Debt-securities crowdfunding -

People buy debt securities that the company has made, like bonds. 
  • SMBX brings together investors and local companies that are growing and need money. You can start investing with as little as $10 and don't need to be qualified to do so. 
  • Funding Circle brings together investors and companies that need money. The minimum investment on the site is $25,000, and only accredited individual and institutional investors can use it. 
  • Mainvest lets investors give money to small businesses, most of which have a physical location. You don't need to be a "qualified investor" to use the site. Anyone over 18 with a U.S. bank account can buy through the platform.
Hybrid models - Give businesses the chance to use parts of more than one type of crowdfunding. 
  • AngelList, a well-known equity-based crowdfunding platform, uses a version of the hybrid crowd design in which lead investors bring ideas to the platform instead of the people who made them. 
Also read - Is Crowdfunding Really Good For Innovation?

Crowdfunding role in Economy and Tech innovation

Investors are always looking for good business ideas to back up. If a startup entrepreneur can sell them on the idea of the business, they are sure to spend. Popular crowdfunding sites can help the startup economy by making it easy to get the money new businesses need. Also, small businesses can avoid high-interest rates that could cause them to fail under the weight of EMIs. Because of them, you can get the money you need to start and run a business right away. You're a founder, and your business has gotten off to a good start. Now, you're looking into how you can speed up growth by getting funding. You might be thinking about stock crowdfunding, which is a good idea!  Equity crowdfunding is a fairly new way for startups and early-stage tech businesses to get money to grow. It is a type of crowdfunding that lets buyers buy company shares, giving them a piece of the business. Equity crowdfunding has a lot of great benefits for the company raising money, but you should think carefully about whether it is the right plan for your business. 

Different platforms for crowdfunding

Crowdfunding sites, like in the fast-paced world of technology, often take money to turn new ideas into reality. GadgetAny, a site for crowdfunding based on rewards, has changed the way tech startups work. GadgetAny helps aspiring entrepreneurs bring their tech gadgets and devices to life by giving tech creators a place to show off their ideas and get financial support from backers all over the world. GadgetAny.com says it will give tech innovators a place to raise money for their ideas without charging any fees. This method gives campaign creators more power by getting rid of financial obstacles. This lets them focus on making interesting campaigns, getting backers, and turning their innovative ideas into real tech goods. KickStarter, Indiegogo, and GoFundMe bring in hundreds of thousands of people who want to make or support the next big thing. But many other donation sites like GadgetAny, RocketPhone, and Ortarize help people in many ways.

GadgetAny

In the fast-paced world of technology, it often takes money to turn new ideas into reality. GadgetAny, a site for crowdfunding based on rewards, has changed the way tech startups work. GadgetAny helps aspiring entrepreneurs bring their tech gadgets and devices to life by giving tech creators a place to show off their ideas and get financial support from backers all over the world. GadgetAny.com says it will give tech innovators a place to raise money for their ideas without charging any fees. This method gives campaign creators more power by getting rid of financial obstacles. This lets them focus on making interesting campaigns, getting backers, and turning their innovative ideas into real tech goods.

KickStarter

Kickstarter is the most famous site for people who want to start their own businesses, raise money, and reach more people. In fact, Kickstarter is different from GoFundMe in that it can only be used to make projects that can be shared with other people. Also, you can't use Kickstarter to raise money for a charity or cause. Projects can't offer incentives like equity, revenue sharing, or investment opportunities and can't include any of the site's banned items.

GoFundMe

As of 2021, GoFundMe will be the biggest site for donations. Since GoFundMe started in 2010, more than 100 million users have given more than $15 billion to the site. GoFundMe is the most popular site for people who need money to pay for medical bills or get back on their feet after a disaster like a house fire, a natural disaster, or an unexpected emergency cost. Kickstarter is often used by new businesses. Also read - 5 Major Challenges Every Entrepreneur Is Facing With Crowdfunding In 2023

Indiegogo

Indiegogo is regarded as a less strict and more fluid platform than Kickstarter because backers can choose whether they want fixed or flexible models. This is the biggest difference between the two crowdfunding platforms. Kickstarter doesn't give out money until the campaign has met its goal, but Indiegogo lets the campaigner get money as it comes in or wait until the goal is reached. As a campaigner, it might be easier and less risky to go with flexible funding, which means getting money as it comes in. However, activists must still keep any promises they make, no matter how much money they raise. 

RocketPhone

RocketPhone is an AI software company that makes enterprise voice and telephony platforms for Salesforce CRM. Today, the company revealed that its crowdfunding campaign for members of the Salesforce Ohana has begun. RocketPhone has already raised over $4,000,000 from Angel Investors, and this crowdfunding effort is meant to bring that total to $6,000,000. With this campaign, a business is trying for the first time to become part of the Salesforce Ohana.

Ortharize 

Ortharize, a business travel platform based in the UK, has reached its original Crowdcube crowdfunding campaign goal of £500,000. So far, nearly 175 Crowdcube investors have joined the round of funds. Ortharize calls itself a self-service tool for business-to-business travel management that lets users book their own flights, hotels, trains, and other business travel needs. Also read - 5 Easy Tips To Raise Maximum Money In Crowdfunding Campaign

Who can start a crowdfunding campaign? And how do they get paid?

To start a crowdfunding site, you should first figure out its niche and who it's for. Make the interface easy to use and the payment method safe. Develop strong tools for creating projects, promoting them, and distributing funds. Follow the rules and laws that are in place. Launch the project, tell people about it, and try to get both project authors and backers. Depending on the type of crowdfunding, you may get a return on your investment in the form of equity (a rise in the value of your shares) or income (if you use P2P lending), or you may just get other perks or benefits. At best, you could make more money than you could on other sites, and at worst, you might never see any of your money again.

Is crowdfunding legal?

Crowdfunding is a way to get money by asking a lot of people for small purchases or donations. Federal securities rules must be followed if a company wants to offer and sell securities through crowdfunding. Under federal securities laws, any offer or sale of a security must be listed with the SEC or meet an exemption. With the Regulation of Crowdfunding, the general public can help start-ups and early-stage businesses get the money they need to grow.  A Regulation Crowdfunding offering can be bought by anyone.  Due to the risks of this type of investment, however, you can only invest a certain amount in these types of transactions in a 12-month time.  How much you can invest relies on how much money you have and how much you make each year. Also read - Crowdfunding vs Crowdsourcing: Are They Same?

Is crowdfunding a good way to raise money?

Crowdfunding is a great way to get people interested in your cause, raise money, and move toward your fundraising goals. A crowdfunding effort is easy to set up. Once you're set-up, sharing your campaign with friends, family, and people who support you is easy. You can also talk about your efforts on social media, which will help you reach more people.  Once your project is up and running and gifts are coming in, the power of the crowd means you don't need a lot of big donations. A lot of people giving small amounts can help you get by. Crowdfunding is a safe and easy way to raise money, and you can do it for any cause you want. This could be something for the community, money for someone else, or a personal cause.

When not to use crowdfunding?

Your minimum viable product (MVP) shouldn't need donations to get off the ground. A good crowdfunding campaign takes weeks or even months to plan and put into action. While you're focused on getting money, you might miss a chance. It's the same as spending time making a slideshow and trying to find investors. Don't try to raise money for as long as you can.

By Prelo Con

Following my passion by reviewing latest tech. Just love it.

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