So, you quit your job. You decided to follow your dreams and start your own business. You’ve got the idea, the passion and all the tools needed to build this next big thing!
A year past by. Things are picking up quite unexpectedly. Your business is booming. You have to expand rapidly. Speed is the name of the game in your field.
You need to expand fast!
What is Crowdfunding?
However, you have one problem, though – you need more capital.
Your business is barely a year old. You can’t ask the bank for a loan. What do you do now?
You scrolled your favourite social media site and found a video pitch of a business. They are crowdfunding their business online.
You wonder what crowdfunding is. Then you quickly typed “What is crowdfunding?” on Google and found this article.
Okay, maybe not. Either way, I’m here to tell you what crowdfunding is.
Crowdfunding has been around for as long as mankind exists. Don’t quote me on that. (If you think about it, any type of pooling of resources by a group of people is crowdfunding.)
According to Cambridge English dictionary, crowdfunding is:
“The practice of getting a large number of people to each give small amounts of money in order to provide the finance for a business project, typically using the internet.”
Yeah, that is all. But what is it really?
Well, there are 4 types of crowdfunding in the world today:
- Donation-based Crowdfunding
- Rewards-based Crowdfunding
- Equity Crowdfunding
- Debt Crowdfunding
Let’s go a little deeper on each one, shall we?
- Donation-based Crowdfunding
Donation-based crowdfunding is a type of crowdfunding where a large group of donors contributes small amounts of money for a non-profit project and good cause.
Think of projects such as building a local community school or organizing a charity drive for cancer survivors. Those are projects suitable for donation-based crowdfunding.
2. Rewards-based Crowdfunding
Rewards-based crowdfunding is a type of crowdfunding where a large group of people contributes small amounts of money to a small business or projects in exchange for rewards. Rewards are often products produced by the small businesses or even discounts for services that they render.
3. Equity Crowdfunding
Equity Crowdfunding is similar to rewards-based crowdfunding. However, the difference between the two lies in what they essentially contribute money for. In equity crowdfunding, the crowd invests in the company in exchange for the company’s shares. The investors will then own a piece of the company.
4. Debt Crowdfunding
Debt Crowdfunding is different from all of the above crowdfundings. Debt crowdfunding, as the name suggests, is where a crowd lends smalls amounts of money to businesses. The businesses will in turn pay the loan plus interest to their lenders.
There you have it. 4 types of crowdfunding around the globe today.
Just to let you know, as for expanding your business, equity and debt crowdfunding are two options you may wish to consider.
Please note that out of the 4 types of crowdfunding, equity and debt crowdfunding carry the highest risk but provides the highest potential economic returns.
Due to its high risk nature, both equity and debt crowdfunding are highly regulated by authorities to ensure the protection of investors.
There’s always a way to fund your company’s expansion.
Crowdfunding is one of them.