Are you considering a crowdfunding project to kickstart a business venture?
In this article, we’re taking you through the four types of crowdfunding, as well as performing an analysis as to which method is best for your needs.
Garnering an understanding of these different types of crowdfunding is critical for assessing how the fundraising method can fit into your overall organizational goals.
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For now, let’s get into the four types of crowdfunding and discover which is best for your venture.
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You should check it out if you want to get more donations and you want to fast-track the entire process.
Donation-Based Crowdfunding
Also known as charity fundraising or nonprofit fundraising, donation-based crowdfunding allows you to source funds from the crowd in exchange for a mission-based cause.
Whether you’re raising for personal expenses, medical bills, or on behalf of a non-profit or charity, platforms like GoFundMe can help you to mobilize the crowd.
The idea here is that people are giving you money for nothing tangible in return — meaning that helping the world is their return on investment.
With this in mind, you’ll have to present donors with a compelling narrative through storytelling. You want to tug at their emotional heartstrings and make them feel like they’re missing out on a real opportunity to propel change if they don’t donate.
If you’re a non-profit or charity organization, donation-based crowdfunding is definitely the route for you. Check out this helpful video to learn more:
GoFundMe Tips for Charity and Nonprofits
Rewards-Based Crowdfunding
Rewards-based crowdfunding allows you to raise funds from a crowd of backers in exchange for a reward, which in most cases is a product offering.
Platforms like Kickstarter and Indiegogo lead the charge in this space, putting up some pretty impressive numbers. On Kickstarter alone, more than 500,000 projects have been launched that have raised in excess of $5.5 billion dollars.
Clearly, it’s a flourishing industry. And it’s still growing fast.
This structure is more or less a pre-order model. Backers gain access to the first run of manufacturing, while you come away with seed money to grow your business. It’s a win-win deal.
Rewards-based crowdfunding is a notorious launching pad for eCommerce, so if you’re looking to spark a long-term business venture, this is a great place to start.
There’s a lot to say about rewards-based crowdfunding, and unfortunately, we can’t cover it all in this article.
You can, however, get A to Z guidance from this killer book: The Kickstarter Launch Formula.
Equity Crowdfunding
Equity crowdfunding has made a major splash in recent years, allowing businesses in the startup stages to acquire funding from the crowd in exchange for equity.
Basically, it’s a real-life Shark Tank. But instead of billionaire venture capitalists dishing out the funds, non-accredited investors can participate for as little as $100 thanks to a provision in the 2012 Jumpstart Our Business Startups (JOBS) Act.
While rewards-based crowdfunding is great for products that are totally unknown, equity campaigns are typically most successful for businesses that already have some traction.
Companies such as AirBnB and Lyft have pulled off wildly successful fundraising rounds on equity platforms, and hundreds more have managed to raise seven figures.
Even if your company is in the very early stages, you have a chance to raise hundreds of thousands. While you’d give away some equity, large sums can catapult your business to new heights — so it’s definitely a route to consider.
To learn more, we highly recommend reading this book: Equity Crowdfunding Explained.
Real Estate Crowdfunding
Real estate crowdfunding is a very specific type of crowdfunding that allows property owners to raise funds from the crowd for development projects. Over time, should that property become profitable, investors reap a share of the profits.
Many real estate crowdfunding offerings are conducted by crowdfunding sites that have the resources and expertise to build, own, and manage a property. And if you’re in that boat but don’t have the money to make it happen, why not source it from the crowd?
It’s also a good idea to keep real estate crowdfunding in mind as you work to diversify your portfolio as an investor. Traditional real estate ownership is expensive, time-consuming, and carries a lot of liability — but all that goes out the door with the crowdfunding model.
You can quite literally own part of an apartment building and do nothing to maintain it! Pretty cool, right?
To learn more about this as both an investor and a developer, check out this book: Real Estate Crowdfunding Explained.
I’ve put together a new GUIDE that’s packed with science-backed nonprofit fundraising methods, resources, strategies, and killer marketing methods.
You should check it out if you want to get more donations and you want to fast-track the entire process.
Conclusions: Which Crowdfunding Method is Best For You?
We hope that this article was informative for you as you navigate the waters of crowdfunding. There is so much opportunity out there, you just gotta seize it!
If you’re ready to launch a campaign, make sure you book a coaching call with the founder of CrowdCrux Salvador Briggman first. He’s helped tons of campaigns smash their funding goal, and you could be next!
But if you’re still in the research phase, we have some great resources for you in addition to the books mentioned in this article:
- The Crowd Crux blog, podcast, and Youtube channel where we’re always working to deliver the best insider tips, tricks, and secrets from experts who have a wide range of experience in the industry.
- The Crowd Crux weekly newsletter that delivers awesome, valuable insights to your inbox every Thursday.
Good luck with your crowdfunding journey! CrowdCrux is here to help when you need us.
