What is Crowdfunding?

Running a business is an expensive undertaking and acquiring the funds you need can be difficult. One of the most popular ways to raise money for a new business is by using crowdfunding. This is a campaign that entices consumers to invest money in your business,  most of the time with the promise of a reward for doing so. It has proven to be a very successful formula for many struggling entrepreneurs. 

Crowdfunding Types

There is more than one type of crowdfunding to choose from. You can focus on offering one or more of them to consumers who are interested in what your business has to offer. The four types are donation, debt, rewards, and equity. Donation is the only type of crowdfunding where donors don’t necessarily get something in return. These people simply want to help your business get off the ground.

Debt crowdfunding is not often used as a first resort. The reason for this is that the money comes from investors who expect to be paid back when your business succeeds. Known as peer-to-peer lending, if you choose this type of funding you have a deadline to meet for paying it back. In addition, you’ll pay interest on the money you borrowed from each lender.

Rewards are the most popular type of crowdfunding to use because they are the most appealing to consumers. The reward they get is based on how much they donate. For example, a small donation may get the individual a t-shirt advertising your business, and a much larger donation may be rewarded with a discount on the goods or services you sell. 

On the other hand, equity crowdfunding is almost never used by small businesses. If you choose to use it, you are extending partial ownership of the business in order to gain cash donations. The higher their donation is the more shares they receive in your business.

No matter which type you choose to use, it is important to stay in touch with everyone who donates. The increased communication will show customers they made the right decision by helping you succeed.

For more information on crowdfunding, please contact JHF Capital.