• Crowdfunding is the method of raising funds through multiple small donations from a range of investors through an online platform.
• The first large-scale crowdfunding campaign was hosted in 1997 by the English rock band Marillion, who raised $60,000 through online fan donations to fund a U.S. tour. This sparked a trend of artists using crowdfunding to finance their projects and the first crowdfunding platform, ArtistShare, was set up in 2000.
• From 2008 to 2011, crowdfunding soared in popularity for businesses outside the arts industry, as platforms like IndieGoGo, Kickstarter, and GoFundMe were established.
• There are four kinds of crowdfunding, and the type you choose will affect how your campaign runs. Your choice should be based on the type of business you’re running,
the size of your campaign, and why you’re raising the money.
• Rewards-based and donation-based crowdfunding can be used on all platforms, whereas only certain platforms provide equity or debt crowdfunding- this is why you should decide what method you want to use before choosing a platform.
• Rewards-based crowdfunding is when backers receive a reward in return for their donation. There is usually a hierarchy where bigger donations earn larger rewards. This is the most common form of crowdfunding.
• Donation-based crowdfunding is when backers do not receive anything in return for their donation, and donate money because they want to help the campaign’s cause. This method is usually used by individuals or charities rather than businesses.
• Equity crowdfunding is when, instead of rewards, backers receive a small piece of equity in the company. Equity crowdfunding usually aims for larger donations per person than other styles.
• Debt crowdfunding is when money is donated to the campaign by “lenders” instead of “donors”, who expect to receive their money back, plus interest.
• Debt crowdfunding is almost exclusively used by individuals rather than businesses, and a lot of the larger crowdfunding platforms don’t offer it. If you’re interested in debt crowdfunding, check out sites like Lending Club, Prosper, and Funding Circle.
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