In this interesting article, Forbes asks the question ‘Is the
Crowdfunding Bubble About to Burst?’ At SoMoLend, we certainly think
We love that Forbes is recognizing the power of crowdfunding and the
impact it will have on small businesses nationwide. The article
references Kickstarter, a crowdfunding pioneer, as an example.
However, it’s important to note that Kickstarter only represents one
model of crowdfunding, reward-based, and it’s not the right model for every
entrepreneur seeking funding.
We’d like to take a moment to elaborate and provide some clarification
about the different types of crowdfunding: 1) donation based
crowdfunding; 2) reward-based crowdfunding; 3) equity-based
crowdfunding and 4) lending-based crowdfunding.
How it works: Crowds fund a project by donating money with no reward or financial return. As of May 2012, the average donation-based crowdfunding project raised $4,076. Donation-based crowdfunding is ideal for social or political projects seeking less than $5,000.
How it works: Crowds fund a project in exchange for a pre-determined reward of
value, such as a t-shirt, recognition, or the finished product. Reward-based crowdfunding is great for creative artists and inventors seeking micro-loans ($35,000 or less).
Reward-Based Crowdfunding Platforms: Kickstarter, IndieGoGo, RocketHub, peerbackers
How it works: Crowds fund a company and then become shareholders in that company. As of May 2012, the average equity-based crowdfunding project raised $84,597. Equity-based crowdfunding is perfect for entrepreneurs seeking up to $1 million who are investor-ready. These companies should be prepared to have actively involved funders with voting rights and shares.
Equity-Based Crowdfunding Platforms: Grow VC, Circle Up, Launcht, crowdfunder
How it works: Crowds fund a business by making a loan and are repaid each month with pre-determined interest rate and term. Lending-based crowdfunding
(sometimes called debt-based crowdfunding) is best for entrepreneurs seeking micro-loans who are financially able to repay a loan each month.
Lending-Based Crowdfunding Platforms: SoMoLend