Crowdfunding Platforms
- Crowdfunding platforms are online forums that connect small businesses in need of financing with pools of individuals and/or institutions looking to invest in small businesses.
- These platforms have become increasingly commonplace in recent years and now span all sectors of our economy, with a mix of debt offerings and startup capital.
- Some cater broadly to provide startup capital, while others favor sustainability-oriented organizations focused on environmental, social and governance (ESG) issues.
- Some are characterized by traditional monetary transactions; others embrace creative payment structures.
Many businesses figured out how to start a small business using investment from crowdfunding. Depending on your type of business some formats will be suitable and some not.
1. Donation-based crowdfunding
This is a philanthropic form of financing, where business investors do not expect to recoup their contribution. Generally, this is only accessible to project-specific endeavors or companies that meet certain ESG (Environment Social and Governance) qualifications.
2. Reward-based crowdfunding
When investors provide money in exchange for a deliverable, rather than a cash return. Oftentimes, this means gaining early access to a business’s planned product or service offering. Kickstarter is probably the best known reward-based crowdfunding platform in the market.
3. Debt-based crowdfunding
Commonly referred to as peer-to-peer lending, matches businesses with a pool of potential business investors. The lenders are provided basic information to evaluate the merits of the various businesses, and they have the ability to fund those they favor. LendingClub and Prosper are two of the better known peer-to-peer lending platforms.
4. Equity-based crowdfunding
They match businesses with a pool of equity business investors. Like peer-to-peer lenders, the investors have the ability to pick and choose the businesses they prefer. Unlike lenders, the equity investors assume a partial ownership interest in the businesses. This provides the potential for greater returns, but more downside risk than lending.
Resources
- https://www.angelinvestmentnetwork.us/entrepreneurs-home
- https://www.sba.gov/funding-programs/loans
- https://www.uschamber.com/co/run/business-financing/guide-to-finding-business-investors
- https://www.bankofamerica.com/smallbusiness/resources/post/what-investors-want-to-know-about-your-business-and-what-to-tell-them/