Crowdfunding involves raising revenue by asking many investors to kick in cash, often in exchange for some benefit. Individuals, typically using an online platform, may offer as little as a few dollars or contribute significantly more to a business venture.
For entrepreneurs like you, crowdfunding may be an excellent way to launch a business. Still, before you go this route, you should have as much information as possible. Understanding the basic types of available crowdfunding is the first step.
Reward crowdfunding
Reward crowdfunding is the most popular type of crowdfunding. With this approach, you accept money in exchange for some type of reward. For example, you may send anyone who gives at least $10 a canvas tote bag emblazoned with your new company’s logo.
Debt crowdfunding
Debt crowdfunding is basically a business loan. That is, you accept funds from individuals with a promise to repay with interest in a specific time frame. Unfortunately, like other types of personal business loans, anything less than a perfect credit score may result in high interest rates.
Equity crowdfunding
Equity crowdfunding gives your financial backers an ownership interest in your business. If you choose this crowdfunding option, though, you likely must comply with regulations from the U.S. Securities and Exchange Commission.
Donation crowdfunding
Donation crowdfunding simply accepts money from individuals without any promise of returning something of value. This type of crowdsourcing tends to raise less than the other types, however.
With many new businesses, individuals do not typically donate start-up funds. Still, if you can convince enough investors to provide small amounts of cash, you may have a straightforward path to launching your venture without incurring significant debt.
