Crowdfunding

Crowdfunding is a popular thing these days, especially as credit policies have tightened, making it difficult for budding entrepreneurs to avail loans from banks or venture capitalists. As the word indicates, crowdfunding is a means of collecting funds from a crowd of investors.

The concept of collecting money from a crowd of people is not new. However, what is new is the emergence of a variety of crowdfunding platforms on the internet. The crowdfunding websites, such as Indiegogo, GoFundMe, AngelList, Kickstarter, LendingClub and the like, have broken the barriers of geographical or social outreach, and have made the process of collecting funds a smooth experience for startup companies. In return, these websites charge a small fee: a percentage of the money raised.

There are four types of crowdfunding; Reward-based Crowdfunding, Equity-based Crowdfunding, Donation-based Crowdfunding, and Debt-based Crowdfunding.

Reward-based Crowdfunding is the most popular flavor, in which investors back the funding campaign they like with the promise of getting something in return, such as the copy of the album, or the 3D printer the campaign is collecting money for. Kickstarter is an ideal example of reward-based crowdfunding.

In Equity-based Crowdfunding, people sell shares of their company to the investors for collecting the required money.

In Donation-based Crowdfunding, investors donate money expecting nothing in return other than emotional benefits of a good deed.

In Debt-based Crowdfunding, investors lend the funds to a borrower as debt.