It’s important to understand the different types of crowdfunding that are out there. Some platforms run just one type of crowdfunding and others more than one. Crowdfunding is evolving so the types of crowdfunding are evolving too.
First up let’s examine the different ways you can crowdfund!
Reward-based crowdfunding: You receive a reward in exchange for your support of a project.
Donation-based crowdfunding: Relies on the morals/interests/ethical motivations of individuals and there are no rewards or perks for your contribution.
Lending-based crowdfunding: Sometimes called peer-lending or P2P, this type of crowdfunding also includes micro-finance sites. Repayment of your loan is expected.
Equity-based crowdfunding (also called Crowd Sourced Equity Funding): Equity, revenue, or profit share of a company in exchange for funds.
Royalty crowdfunding: Royalty crowdfunding offers a royalty or part of the profits of the company seeking crowdfunding.
Subscription crowdfunding: Allows supporters to pledge weekly, monthly, quarterly or annually via subscription. Typically the commitment will continue indefinitely until subscribers opt out.
There are several different models of crowdfunding too! There are different terms used to describe funding models as each platform strives to differentiate itself.
All or nothing or fixed crowdfunding: The project creator needs to set a target funding level. If the funding target is not reached in the chosen time period then no money changes hands. Those who support this type of crowdfunding say it ensures that there is a firm goal and that it is possible for the creator to deliver on their project and the rewards offered.
Keep all or flexible crowdfunding: You may set a funding level but you keep all funds raised even if the target is not reached. At times a variation may be that you are charged higher fees if you don’t reach target but still keep all funds aside from the crowdfunding platform and payment provider fees. This is beneficial when you need to raise some funds, but can be a problem if not enough money is raised ot deliver on your pledges to supporters.
Tipping point: This is a funding model that seems to be gaining in popularity. A creator can set a point at which the project ‘tips’. At that point they will have raised enough funds to dleiver on their project provide backers with rewards. Generally there is also a final funding goal where more can be achieved and this form of crowdfunding works well when the extra benefits of the higher goal amount are clearly explained. Until tipping point is reached the crowdfunding model is all or nothing. Beyond tipping point the model changes to keep all. Some sites will give creators immediate access to funds beyond the tipping point too.