Crowdfunding presents a wide range of opportunities to collectively raise money online for any cause. This ranges from universities raising money for students to startups looking for initial sources of capital. The possibilities are endless when it comes to crowdfunding! That said, an issue many people face is trying to decide what type of crowdfunding their cause falls under. Each type of crowdfunding platform has its own rules and regulations; therefore, it is important to know exactly what you are trying to accomplish in order to know what platform to use.
There are 4 main categories of crowdfunding platforms, each with their own specific method of allowing campaigns to raise money online. The following are those models of crowdfunding platforms:
1. Donation: Donation-based crowdfunding is the most well-known and straightforward type of platform. Backers of these projects do not expect to be reimbursed for their monetary contribution. Most of the time, the campaigns that use this type of crowdfunding model are charities and social-based causes.
2. Reward: Reward-based crowdfunding is different in that the backer does receive parks for providing funds. Startups or individuals creating a product often use this method, and–after completion–the startup promises to distribute the invention. Also, this type of crowdfunding is common in the film industry where backers will receive production credit for funding a project.
3. Debt: Debt-based crowdfunding involves individuals or businesses being lent funds by either an individual or an institution. In return for these funds, a borrower must repay the initial investment with interest. This type of crowdfunding is becoming increasingly popular but also has some qualifications attached. This includes ensuring that the borrowers have the capability to repay a loan, which stops most startups from using this type of crowdfunding.
4. Equity: Of the four types of crowdfunding platforms, equity-based crowdfunding has been getting the most news attention over the last few months. This is due to new SEC regulations that are being instituted, which allows for increased access to investment opportunities for accredited investors through general solicitation. The basis for this crowdfunding model is that a startup agrees to sell equity–or shares–of its company in return for capital infusion. This type of crowdfunding works well for startups trying to secure initial investment. In the future, many hope that greater access to investment will be possible with this model once future SEC regulations are disseminated.
As you can see, there are a variety of crowdfunding platforms that a campaign can exist under. We here at Launcht specialize in licensing platforms that fall under the donation, reward, and equity categories. In particular, equity crowdfunding is a relatively new phenomenon in the United States and Launcht is on the cutting-edge of creating platforms for this type of service. To learn more about the white-label crowdfunding software of Launcht, please click here.