Crowdfunding has exploded in popularity in recent years and especially amongst the Millennial generation. This is now the primary way for individuals and most small businesses to raise money online.
The plethora of crowdfunding websites available may have you overwhelmed with too many options to promote your project. Different websites have different methods of promoting and distributing funds for crowdfunded projects. To understand which type is right for you you, you must have a good grasp on how the different platforms work. You may also choose to take your project to a combination of websites as long as it does not breach their terms and conditions.
The most basic and popular type of crowdfunding is donation-based. This is also the one that we, at Leetchi.com are associated with. You can save the earth, promote a good cause or simply help an individual in need. You can also fulfill your lifelong art project, finish your great novel or travel. On a donation-based websites you can simply ask for donations without any obligation of delivering a product or service to each donor. This is typically used for charitable or personal purpose rather than for commercial one.
This is an effective crowdfunding method for small businesses. Typically, donations are set at different tiers. Each tier will give benefits to donors such as social media shoutouts, product giveaways, autographs, recognition in the credits, and more. This method is used on sites like Kickstarter.
Some projects go above and beyond with creativity when coming up with rewards. Some project creators have event made the effort to write personalized letters for every backer that made the minimum donation amount. An ice cream parlor from Boston let donors that contributed $200 or more to create their own custom ice cream flavor. The Poplar Wood Farm 2013 project allowed donors of $150 to give names to their goats.
This type of crowdfunding is not as common as the ones above, but it typically looks for high-income backers to buy equity shares into their project. In exchange for contributing to the project, investors will be promised a portion of the profits. This is more comparable to venture capital funding rather than asking for donations. Depending on the terms, backers may also have a say in the direction of the project. AngelList is an example of equity crowdfunding websites.
This type of crowdfunding is for when the user asks for a loan publicly and multiple debtors will provide funding. The benefit to the debtor is by receiving their money back with a small amount of interest. It may be used for both small businesses or personal finance needs.