TL;DR - There are three primary types of crowdfunding: donation-based, rewards-based, and equity crowdfunding.
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Tags - crowdfunding, initial capital, financing, startups, investment, types of crowdfunding, donation-based crowdfunding, rewards-based crowdfunding, equity crowdfunding
- What types of crowdfunding are there?
- What is donation-based crowdfunding?
- What is rewards-based crowdfunding?
- What is equity crowdfunding?
- Any crowdfunding that offers no financial return to the investors can be considered as donation-based crowdfunding (e.g. fundraising for disaster relief, charities, nonprofits, and medical bills).
- Rewards-based crowdfunding offers investors a reward (typically the product or service that the company offers), but is still considered a subset of donation-based crowdfunding as there is no financial or equity return.
- When raising crowdfunding capital, founders need to answer the audience’s questions and build their confidence in the startups/projects.
- Every successful pitch does three things: state the problem, introduce the solution, and define the market size.
- “Rewards” generally fall into three main categories: pre-orders (most popular, selling pre-orders of the product the company is planning to produce), services (if pre-orders are unavailable or do not fit the business model), and recognition (perfect for donations under $20).
- Equity-based crowdfunding allows investors to become part-owners of a startup.
- As equity owners, investors receive a financial return on their investment and ultimately a share of the profits in the form of a dividend or distribution.
- To successfully launch an equity crowdfunding campaign, founders should put the followings together: executive summary of the company, terms of the fundraise, business plan, pitch deck, financials, and closing documents.
Follow up links:
- Investor email pitch guide (for crowdfunding), https://www.startups.com/library/expert-advice/how-to-craft-the-perfect-investor-email-pitch?__hstc=219066822.082bcdb3349bc5602fa2eb12734d53ba.1590731895973.1590734290748.1591103227695.3&__hssc=219066822.1.1591103227695&__hsfp=3470305763
- Crowdfunding video guide, https://www.startups.com/library/expert-advice/how-to-create-an-effective-crowdfunding-video-for-your-startup?__hstc=219066822.082bcdb3349bc5602fa2eb12734d53ba.1590731895973.1590734290748.1591103227695.3&__hssc=219066822.1.1591103227695&__hsfp=3470305763