As we become more connected around the world, more and more people turn to crowdfunding to make a difference. And crowdfunding experts agree: this unique way of raising funds quickly will continue to grow. In fact, the global crowdfunding market is expected to nearly triple in total annual donations by 2025, to a staggering $28.8 billion. Discover the five most common types of crowdfunding, including exactly when and how to use each type, so that your next fundraiser is set up for success.
Benefits of crowdfunding
Why start a fundraiser? Through crowdfunding, you can quickly and easily raise money for causes close to your heart, all while creating a community of like-minded supporters who are eager to help. Crowdfunding is right for you if you need to raise money fast, like in the case of a personal or financial emergency, or if you want to support a project or charity that needs funds on a deadline.
Make sure to consider the following features when choosing a crowdfunding platform.
- Safe crowdfunding practices that keep donor protection in mind. This means encrypting credit card data, using an up-to-date SSL certificate, and having a refund guarantee.
- Free fundraising with a 0% platform fee. In most cases, you will still need to pay a small percentage fee for payment processing, no matter the platform.
- A crowdfunding site specifically designed for your fundraiser. Some sites are better suited for personal fundraising, while others are geared toward community projects and charities.
- Look for a platform with an updated and active crowdfunding blog. A blog not only acts as a resource to help you start a successful fundraiser, but also lets you know the platform is committed to helping its users.
1. Donation-based crowdfunding
One of the most popular types of fundraising, donation-based crowdfunding is simply asking for a small donation from a large number of people to raise money for something you care about.
How does donation-based crowdfunding work?
Donation-based crowdfunding is best used to raise money for personal needs as well as community-based projects. You can share your fundraiser with your own network and on social media as a way to amplify awareness and encourage more donations. Examples of donation-based crowdfunding include raising money to cover medical expenses or an unexpected financial crisis, or raising funds for local projects like a community garden or new park.
2. Reward-based crowdfunding
Rewards-based crowdfunding is another common type of crowdfunding, typically used to raise funds for a new startup or organization that offers a product or service.
How does reward-based crowdfunding work?
With rewards-based crowdfunding, donors can earn rewards based on the amount they donate. Common rewards include handmade items, prizes donated by partner companies, or free products or services offered by the fundraiser organizer. For example, an artist raising funds to start an art collective and gallery could offer original signed artwork, replica prints, or even a free art workshop based on the amount donated.
3. Equity crowdfunding
Also known as crowd-investing, investment crowdfunding, and crowd equity, equity crowdfunding is best for small to medium-sized companies that are seeking a large amount of capital to launch or grow their business.
How does equity crowdfunding work?
In exchange for donations, donors receive a percentage ownership in the company. This percentage varies depending on the business, and can be a great way for companies to quickly raise funds without the headache of a traditional business loan. Usually, equity fundraising requires large fundraising minimums, typically into the thousands of dollars.
4. Debt Crowdfunding
Also known as peer-to-peer lending and crowdlending, debt crowdfunding is a fast and easy way for both individuals and businesses to raise the money they need, when they need it.
How does debt crowdfunding work?
Debt crowdfunding works by collecting donations with the promise to pay them back at a later date. Debt crowdfunding is usually used by businesses that need capital, and that prefer to pay back the funds rather than give out equity. Individuals also used debt crowdfunding when they need money to pay off a loan or other financial obligation. With a debt fundraiser, make sure to clearly state what the money is needed for and when donors can expect repayment.
5. Real estate crowdfunding
Among the recent types of crowdfunding models, real estate crowdfunding is becoming more popular for investors who want to put their money in real estate, without the hassle of getting a traditional loan or the obligation of owning all of a single property.
How does real estate crowdfunding work?
Typically, an individual or a real estate company will collect funds from investors to pay for a large property, like an apartment building. With real estate crowdfunding, investors can contribute much smaller amounts of money—usually starting at $5,000—depending on how much of the property they would like to own. Investors will then receive payouts each quarter, depending on how much revenue the property generates.
Start crowdfunding for your cause today
For the majority of crowdfunding needs, donation-based crowdfunding is the best solution. There are no complicated requirements to start a donation-based fundraiser, and no lengthy waiting periods to receive the money you’ve raised. And unlike other forms of crowdfunding, donation-based means you never have to pay the money back. Plus, people love supporting causes, ideas, and other people who they connect with—we can all agree that it feels good to do good. Sign up today and start your fundraiser, and see how quickly you can raise the money you need.