We all face complications in life that ask for an arrangement of considerable funds. This puts us in a dilemma if we have insufficient savings. Moreover, loans and insurance are not feasible options for everyone. Getting credit or other financial aid becomes difficult if you constantly struggle financially. In such situations, crowdfunding appears as a viable solution. It does not involve risks and hefty investments.
This allows even financially backward classes to consider it for special needs. Typically, fundraising is used for causes like education, medical treatments, social projects, business ventures, and personal reasons. It involves raising funds online with the help of smaller contributions from the public. The goal amount for the same ranges from thousands to lakhs depending on the cause. Raising funds this way gets categorised as:
Donation-based
This is an exceedingly popular and effective fundraising method. It targets the need of underprivileged classes who struggle financially. Hence, this type of funding is mainly used for social causes and helping those in need. You need not return the funds as a campaigner if you opt for donation-based funding. The donors are urged to contribute based on their capacity without any expectations in return.
This is a practical approach used by non-profit organisations and fundraising platforms to aid medical causes. Therefore, donation-based crowdfunding for medical treatment is highly popular.
Debt-based
This version is also referred to as crowdlending, marketplace lending, or peer-to-peer funding. It is fast becoming an alternative to conventional methods. Here, multiple lenders come together to help borrowers reach the targeted amount. They set a predetermined interest for the same. This allows investors to get a better interest rate as opposed to banking. Similarly, you get immediate access to funds as a borrower.
Reward-based
Also known as seed-funding, entrepreneurs use this type of fundraiser. They pledge to provide some gratification in return for the monetary contributions. Often, such rewards get predetermined based on the donation amount. Besides fundraising, this approach acts as an excellent promotional strategy to build a customer base for the offerings. It also enjoys a higher success rate as donors have something to look forward to.
Tier-based subscription model
Unlike other categories, this is a less-known form of fundraising. It was used for assembling the Statue of Liberty. Similarly, this approach is adopted for monumental projects. It is like reward-based funding, except an exact return is not predetermined. It depends on the contribution amount. Hence, donors subscribe to the model in the hopes of return while investing through this method.
Equity-based
Entrepreneurs or organisations looking to expand their businesses use this type of funding. They must give up a portion of their equity to get funded. This makes the partial investors owners of the business. They enjoy the privilege of getting a financial return for their investment. This goes out of the profits that the company makes. The monetary earnings are typically known as dividends.
