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Raise Money for Your Startup: 3 Types of Crowdfunding

Let’s assume that you want to build a new business company or a startup, but you don’t have enough money to do that. What will you do? You have probably already thought about crowdfunding, but if you haven’t, here you are able to learn more about this option.

Crowdfunding is a technique, which is used by entrepreneurs to coax people via internet to give them some money so they can build their startups. Does it sound strange to you? Yes, this is possible now a day due to the procreation of sites, which allow businesses and NGO’s to raise money. This is the version of e-fundraising. According to the research of Massolution, there are more than 600 firms, which are working as a crowdfunding source and the range of their fundraising is up to billions of dollars annually.

The websites like Indiegogo and Kickstarter are commonly used for crowdfunding fundraising. You can get donation from these sites but in return you need to give some advantages to them, for example you can give them product free of cost. Some sites are also working on the base of royalty financing. In this concept the owner of the business is a connection to the investors. The owner gets the money of investors and fixes a percentage with them from the revenues of the business.

Crowdfunding undoubtedly is a new type of startup but this model has created its impact on world. This model has changed the way success predication are made and disturbed the industries and also gives new and better ideas to the world. It’s amazing, because according to SBA, every year 600,000 new business are started in America. The VC model of Silicon Valley funded 300 businesses only which means 99.95% businesses is not able to get funds.

So to get a change we need to fully understand the basics of crowdfunding. We need to find how crowdfunding would be beneficial for us? What are the laws about crowdfunding and how these laws affect the future of crowdfunding? Here we are discussing the types of crowdfunding. Which you should be aware of.

  • Equity Crowdfunding

In this technique the investor invests his money on your idea for exchange of some share or stake. He will be partner of product’s success or loss according to his share. The overall outcome of this method is the greatest as compared to others. No doubt the position of investor is in danger because he will be in losing if the company or product fails to attract the users.

  • Donation Base Crowdfunding

This type of crowdfunding doesn’t give any benefits to the investors in exchange of their investing. Usually this crowdfunding expedition use in charity base work or to support different causes. As this is a charity base work so there is no need to establish a specific company or create a specific product.

  • Reward-based Crowdfunding

In this type of expedition, the company gives benefits to its investors at different stages or levels according to their investments. These benefits differ from level to level. May be you get a small share in the profit of company, you can get the company’s product free or maybe you can the list of email recipient of a specific product.

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─ April 26, 2016