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EXPLAIN THE DIFFERENT TYPES OF CROWDFUNDING

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24
May

To finance projects and/or business ventures, one can raise capital using the crowdfunding method. Fundraisers can collect such capital from a large group of people via online platforms, charity events and/or other methods. Now-a-days, crowdfunding has been a widespread concept all over the world because of its ability to help raise millions for various projects and/or business ventures.

If you have a business venture or a new project idea and need funding, all you need to do is put together your profile of the project on a crowdfunding website and start promoting it. These websites help to grow the communication between the crowd and the fundraisers. If the campaign for crowdfunding is a success, then the fundraisers will be charged a fee by the crowdfunding platforms.

Types of crowdfunding
There are currently four main types of crowdfunding. Each uses a different strategy to attract funding and may have different tax consequences for the parties involved.

  •  Donation-based crowdfunding: Here, the supporters donate a diminutive sum of money, normally varying from $1 and $1,000, but could be more. It is usually used to solicit money for a non-profit or for a cause they believe in.
  • Reward-based crowdfunding: The contributor donates to a project or business with expectations of receiving intangible returns like, acknowledgement, tickets to events, etc. The contributor might also receive any merchandise or discount because of such crowdfunding programs.
  • Equity-based crowdfunding: The equity-based contributor invests a significant sum of money, which may vary from at least $1,000 to a greater amount. Here, money is exchanged for a share, or a small stake in the operating business, project or venture.
  • Debt-based crowdfunding: Also, known as peer-to-peer (P2P) lending, acquiesces to pay interest and repayment of basic on the loan provided by the investors. This type of crowdfunding may include micro-finance sites.

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