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Most Popular Types of Crowdfunds

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Most Popular Types of Crowdfunds

By Startup Valley (525 words)
Posted in Crowdfunding on August 22, 2014

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According to Forbes.com the crowdfunding industry grew to $5.1 billion worldwide in 2013. Crowdfunding campaigns, steadily gaining popularity, are responsible for the launch of movies, new technologies and for sizable donations to charitable organizations and social causes. There are a variety of crowdfunding types, with the following being the most popular.

Rewards
Rewards based crowdfunding, a common type of crowdfunding for creative projects, offer incentives to donators based on funds given. Within this type of crowdfunding there are two popular subcategories:  All-or-Nothing and Keep-It-All. An All-or-Nothing crowdfunding campaign requires that all funds, to fulfill the goal amount, be raised within prescribed length of time. If the goal is not met, the project does not receive any money. In Keep-It-All campaigns, those seeking funds receive all of the money raised regardless, however might pay a greater fee if the goal is not met.

Reward based campaigns are often tiered with the most prestigious rewards reserved for those who contribute the highest amount of money. This particular type of campaign is well suited for individuals who have a tangible good or service to offer customers. An example of a notable reward based campaign is Zach Braff's Kickstarter campaign. The actor raised $3.1 million dollars to support his film, Wish I Was Here, which debuted at the Sundance Film Festival. Rewards offered included merchandise related to the film, recognition during the end credits of the movie and passes to various premieres of the film that the actor himself attended.

Equity
Equity crowdfunding has experienced a significant increase in popularity since the passing of the JOBS Act. Title III of this legislative bill essentially allows anyone to become an investor in a small business as it removes some of the securities regulations that otherwise prevent individuals, based on imcome, from being investors. Title III is expected to be finalized by the end of 2014. Title II of the JOBS Act states that organizations are allowed to publicly advertise that they are seeking capital and investment. Equity campaigns are especially beneficial to small, private companies or entrepreneurs who require capital, but who do not wish to incur personal debt in order to fund a project. When an investor contributes capital to an equity campaign, the investor receives actual stock from the company. Equity crowdfunding is an incredible tool for small startups as it is a combination of marketing and fundraising.

Donation
Donation crowdfunding is straightforward; individuals or organizations create a fundraiser and backers contribute donations freely. There is not exchange of rewards or equity and as such donation campaigns are the most popular among individuals requiring assistance, social causes or charitable organizations.

Lending or Credit
Lending Crowdfunding campaigns most closely resemble traditional means of gathering capital for a business venture. In a lending or credit campaign, an entrepreneur receives funds from investors in the form of loans. These loans are paid back by the entrepreneur via an established timeline and interest rate. Lending campaigns are beneficial to entrepreneurs or small businesses that are looking to raise capital, but do not wish to part with any shares of the company in exchange for financing.

 

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