What is CrowdFunding and Major Project Categories
Crowdfunding is a web-based funding practice aiming to help entrepreneurs to raise funds from a large number of people (Crowd).What Is Crowdfunding?
Crowdfunding involves three (3) main parties:
1-Project Initiators (entrepreneur or other) who propose an idea (detailed project)
2-Contributors (individuals or group of people) who are willing to fund the project
3-CrowdFunding Platforms (web-sites) which bring together Project Initiators and the Crowd
Crowdfunding Categories
Crowdfunding projects are divided into many categories based on their cause:
(1) Donation Projects
(2) Reward Projects
(3) Debt CrowdFunding Projects
(4) Equity CrowdFunding Projects
(5) Litigation CrowdFunding Projects
01 Donation CrowdFunding Projects
Common people invest in a project simply because they get inspired by its cause. There is no reward for those donating. This category includes majorly artistic, scientific, charity and philanthropy projects.
02 Reward CrowdFunding Projects
The crowd donates money in a project and when this project is completed it get back pre-determined rewards. If the funds are not sufficient for the completion of the project usually donations return back to the crowd. These rewards are usually in the form of finalized products, tickets or acknowledgments. This category includes music, events, science, software development and many types of tech products. There are two types of reward-based crowdfunding:
(i) ‘Keep-it-All', no matter if the fundraising goal is met, the entrepreneur keeps the entire amount raised
(ii) 'All-or-Nothing', if the funding goal is not met then the entrepreneur returns donations back to the crowd.
All-or-Nothing Campaigns are usually more Successful
Based on a joint study regarding crowdfunding between Canada's York University and Universite Lille Nord de France (2014), the All-in-Nothing Campaigns are more successful. More specifically the study's researchers analyzed 22,875 crowdfunding campaigns, with targets of between US$5,000 and US$200,000, and concluded: "Overall, [all-or-nothing] fundraising campaigns involved substantially larger capital goals, and were much more likely to be successful at achieving their goals".
03 Debt-CrowdFunding Projects
This category of crowdfunding projects is based on money rewards. Investors who fund debt-financing projects receive back their initial capital added with interest. This is also called as P2P Financing (peer-to-peer).
04 Equity-CrowdFunding Projects
Equity Crowdfunding is similar to investing in the stock-market. Investors fund a project in exchange for equity (shares). Companies funded via Equity Crowdfunding are usually in their early stages.
In the US, according to the ‘2012 JOBS Act’, corporate legislation allows the existence of a wide pool of small investors with fewer restrictions.
05 Litigation CrowdFunding Projects
Litigation CrowdFunding projects allow common people to take part (invest) in legal disputes. Individuals who fund a legal claim will receive a stake if the case eventually succeeds.
CrowdFunding Short-History
Maybe the first non-internet crowdfunding project was the Statue of Liberty. During 1885, a campaign led by newspapers managed to attract many small donations in order fund the project.
The first internet crowdfunding project goes back in 1997 when the music band Marillion used the web to raise $60,000 in order to fund their US tour. The first crowdfunding site appeared in 2003 and it was the web-site ArtistShare. The term "crowdfunding" appeared for the first time in 2006 by Michael Sullivan.
Following ArtistShare, EquityNet started in 2005 and many others appeared including IndieGoGo in 2008, Kickstarter in 2009 and GoFundMe in 2010.
Today Crowdfunding sites assist individuals and corporations to raise billions of dollars in a yearly basis. More than 50% of the total funds are raised by US companies and US residents.
■ CrowdFunding and Four Categories of CrowdFunding Projects
George Protonotarios for CrowdHolder.com
