Crowdfunding: Everything You Need to KnowStartup Law ResourcesVenture Capital, Financing
Crowdfunding involves a lot of people investing a small amount of money to start a project. It is typically done online through crowdfunding websites. 2 min read
CrowdFunding: What Is It?
Crowdfunding involves a lot of people investing a small amount of money to start a project. This is typically seen over the internet, but can also be done in other ways. Asking strangers for money may seem awkward, but it doesn't have to be. There are a lot of excellent crowdfunding sites that people trust. By using one of those sites and having a great project, you have a higher chance of getting people to help you.
Equity crowdfunding has been a newer option available under the Jumpstart Our Jobs (JOBS) Act.
What Are the Types of CrowdFunding?
There are three main types of crowdfunding:
Donations - This is very straightforward. You are asking people to give you money for a project, charity, or other good cause. The people who give money know they won't be receiving anything in return. They are just helping another person by freely giving money.
Equity - Businesses often use this type of crowdfunding if they are already operating and need to expand. You will be offering shares of stock in your company to the people who give you money. That can be a lot like the stock market, and comes with a lot of rules and regulations to consider.
Rewards - These types of crowdfunding campaigns give the money donor something, but not equity in the company. If you are making a product and you want people to help you fund it, you can offer them a product or other items depending on their contribution level. That way they get something back.
Advice for Your Crowdfunding Campaign
It's important to remember that there are three stakeholders when it comes to crowdfunding. These are the person or group who wants the funding, the investors who are providing the money, and the website where the two connect. Make sure you pay special attention to that last one. Some crowdfunding websites are better for your intended use than others. When you choose the right website, you have a better chance of success.
Popular crowdfunding sites for companies include Kickstarter, Indiegogo and GoFundMe. Crowdfunding sites that are more for investors include MicroVentures and Angel List.