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Kinds of CrowdFunding - - CFP

posted Apr 3, 2013, 3:49 PM by Andrew Manzo   [ updated Apr 5, 2013, 4:28 PM by David Khorram ]

    What is Crowdfunding? - With the economic downturn causing banks to tighten their purse strings, you may need to find alternative sources of funding to get your start-up off the ground. Indeed, 65% of entrepreneurs planned to seek alternative finance in 2012, according to a survey by Huddlebuy.

    Crowdfunding is asking a crowd of people to donate a defined amount of money for a specific cause or project in exchange for various rewards. Crowdfunding is an alternative method of raising finance for a business, project or idea, popularised by in the United States.

    The main benefit of crowdfunding is that it creates a strong network of support for your start-up. With the equity model in particular, your investors are likely to become ambassadors for your brand – promoting it among their networks, tracking your progress and becoming returning customers themselves. They may also offer to lend a hand, for example by providing free legal advice or accountancy services.

    There are more than three general categories crowdfunding can fall under: Equity, Donation, and Debt.

Equity-based crowdfunding is asking a crowd to donate to your business or project in exchange for equity.

Donation-based crowdfunding is asking a crowd to donate to your project in exchange for tangible, non-monetary rewards such as an ecard, t-shirt, pre-released CD, or the finished product.

Debt-based crowdfunding is asking a crowd to donate to your business or business project in exchange for financial return and/or interest at a future date.

Why do it

  • Crowdfunding is useful for a variety of opportunities, whether fundraising for disaster-relief, creative projects, creating a salable product, or creating a start-up.
  • Crowdfunding platforms allow you to market your project, generate interest, and receive funds.
  • Crowdfunding backers can provide useful feedback about your project.
  • Once you get a solid base of support, there is no limit to the amount of projects you can fund.

Why not do it

  • Crowdfunding your project exposes your ideas to copycats.
  • Crowdfunding platforms may limit the amount of funds you can obtain.
  • Crowdfunding regulations and taxation can be difficult to work with.
  • Usage of platforms is dependent on where you are from