Crowdfunding is a way of raising funds for a business, project or idea, which utilises a large number of people via the internet.
Crowdfunding gained popularity in the early 2000’s in the UK, primarily with artist and musicians, however has more recently become a tool for entrepreneurs, start-ups, small businesses and Non-For-Profits.
Donation-based crowdfunding:
This is where ‘backers’ (people who ‘back’ the project) donate money without expecting any return. Donation-based crowdfunding is primarily used for charitable or social causes, disaster relief, or personal emergencies. One of the largest sites for donation based crowdfunding is GoFundMe.
Reward-based crowdfunding:
Reward-based is one of the most popular types of crowdfunding where backers receive a reward in exchange for their contribution. The reward can be a product, service, or experience related to the project or business. Reward-based crowdfunding is often used for creative projects, such as films, music, books, or art, or for launching new products. Examples of reward-based crowdfunding platforms include Indiegogo and Kickstarter.
Equity-based crowdfunding:
Equity Crowd Funding (ECF) has grown at an increasing rate since its introduction in Australia in 2016 under the Corporations Amendment (Crowd-sourced Funding) Bill 2015 (Cth), and is where backers receive a share in the ownership of the business or project, usually in the form of stocks or equity. Equity-based crowdfunding is often used by start-ups or small businesses looking to raise capital from a large number of investors. Australia's largest ECF platforms include; Swarmer, Equitise, Birchal & VentureCrowd.
Debt-based crowdfunding:
This is where backers lend money to a business or project with the expectation of receiving interest or repayment of the principal. Debt-based crowdfunding is often used by businesses or individuals seeking to finance a specific project or to consolidate debt.
Crowdfunding offers several benefits for entrepreneurs, small business owners, and creatives, such as:
Access to funding:
Crowdfunding provides an alternative source of funding for projects or businesses that may not qualify for traditional financing.
Validation of business idea & Market testing:
Crowdfunding allows entrepreneurs to test their ideas and gauge interest from potential customers or investors.
There is no guarantee that any Crowdfunding Campaign will be successful, however by creating a strong plan and preparing for your launch will have a huge impact on the outcome of your raise.
