THE 4 TYPES OF CROWDFUNDING + Video
There are four (4) main categories of crowdfunding campaigns based on what (if anything) the person contributing the money can expect to receive in return. The four types of campaigns are: (1) donation based crowdfunding; (2) rewards based crowdfunding; (3) debt based crowdfunding; and (4) equity based crowdfunding.
Too much of the capital in our world is held under lock and key by big rent-seeking institutions — precisely where it does the least good. Crowdfunding bypasses those stingy institutions by directly connecting businesses needing funds to those with money who stand to gain something — whether physical, financial, or emotional — through said businesses’ success. I’ve given you a rundown of the four primary ways to conduct crowdfunding. No single one of these methods can be said to be best for everyone. The best way I can break it down is like this:
- Rewards-based crowdfunding is best for startups and businesses with something exciting to offer the public. Gadgets, games, movies, and dining experiences all qualify.
- Equity crowdfunding is best for companies with exponential growth potential but which may lack a singular product or experience that could generate viral enthusiasm.
- Debt crowdfunding is best for startups and stable businesses that need cash for a defined purpose and which have a plan to pay back the loan.
- Donation crowdfunding is best for nonprofits, businesses devoted to a philanthropic cause, businesses struggling to recover from hardship, or other businesses that can appeal to donors’ sense of compassion.