Crowdfunding means use of small amounts of capital from groups or individuals to finance new business venture. With the ease accessibility of vast network of people through social media and crowdfunding websites, crowdfunding brings investors and entrepreneurs together at a common platform. Crowdfunding help’s you grow bunch of investor from whom fund can be raised beyond long established circle of owners, relatives and venture capitalist for business venture. The idea can be anything from tech to video game to a novelty gift. The key is to engage people in your idea, able to convince them to invest small amount of monetary fund for small reward, and get them to share the project and also let others know about it.
The crowdfunding software generated an approximate $2.1 billion funding for startups in 2015. And it is expected to rise more by 2016 year as per the Forbes resources. When we look back in 2012 year, the platforms raised around $2.7 billion i.e. 81% increased amount compared to past years. And it is expected to grow more. Thus the market value of Crowdfunding is burgeoning.
There are different types of crowdfunding script business model which are: Reward based crowdfunding, Equity crowdfunding, Debt based crowdfunding, Ligitation crowdfunding, Donation based crowdfunding.
- Reward-based crowdfunding: It is also known as non-equity crowdfunding.Entrepreneurs presell the products or services for launch without selling property or taking debt from others. Here funding does not rely on the location.
- Equity crowdfunding: It is the communal efforts of individuals or groups to support the idea of initiator and finance in form of equity.The project creator raise the capital for the product according to meet the target not only to launch, but also offers security as a return of investment.
- Debt-based crowdfunding: It is also known as peer to peer or crowdlending. Here the project creatorapply online for fee and their application is reviewed by the system with borrowers credit risk and interest rate. Investor makes money from the loans and the system operator makes money from servicing fees by taking some percentage.
- Litigation crowdfunding: In this type, it allows defendants to reach out numbers of peers simultaneously as in confidential manner to gain funding. The reason can be for donation or provide reward in return for fundingand investor can get back more than their investment if it succeeds.
- Donation-based Crowdfunding: In this type, collective efforts are made to help charitable causes andcapital is raised for pro social or environmental purpose.