It all begins with a Visionary Idea! Every business starts with an idea capable of changing the world, be it one’s own or that of others. However, bringing that idea to reality isn’t everyone’s cup of tea. It requires will, the courage to face rejections, withstanding challenges, building client relations and trust, and constant arduous work. And before all of this, one needs funds to ignite the initial spark that can turn the idea into reality.
To achieve this, entrepreneurs can go to angel investors or venture capitalists, or appeal to the masses for crowdfunding. The latter is a simple practice to raise funds to run small ventures from diverse sources. It comes with numerous benefits including fast and effectively raised money, opportunity to refine the idea, social proof and affirmation, exposure from media, and much more.
Let’s discuss in brief how one can appeal to people for financing his/her startup with crowdfunding.
Equity-based
Equity-based option helps startups to allow backers have an equity-based stake in their business. Herein, backers invest in an unlisted company in exchange for shares. However, one must note, as this possesses the potential for competition from venture capitalists, the Securities & Exchange Commission has a special interest in this revenue. Hence, one must familiarize with the rules before leveraging such funding.
Reward-based
In reward-based crowdfunding, the funds are raised by providing rewards to the backers. Also called as seed, here, businessmen obtain financial contributions for a product or a service from individuals. The startups can then customize the rewards as per relevant interests.
Royalty-Based
It is a type of crowdfunding that allows backers to gain profit when the startup becomes successful enough to generate revenue. Herein, investors obtain royalties solely based on sales.
Donation-based
Used particularly for charities and social causes, donation-based crowdfunding involves the collection of different sums of donations without having to offer anything in return to the investors. Such campaigns majorly aim to raise a certain amount of money.
Debt-based
This funding is also known as crowdlending and lending-based. It allows raising of funds without giving away any equity to the investors. Basically, the investors take part in startup financing with the expectation of the growth in the value of those shares. Such funding seeks a good amount of money and hence, uses companies that look to acquire others or assist in merger deals.
