Comparison of crowdfunding services

Last updated

Crowdfunding is a process in which individuals or groups pool money and other resources to fund projects initiated by other people or organizations "without standard financial intermediaries." [1] Crowdfunded projects may include creative works, products, nonprofit organizations, supporting entrepreneurship, businesses, or donations for a specific purpose (e.g., to pay for a medical procedure). Crowdfunding usually takes place via an online portal that handles the financial transactions involved and may also provide services such as media hosting, social networking, and facilitating contact with contributors. It has increased since the passage of the Jumpstart Our Business Startups (JOBS) Act.

Contents

Crowdfunding use

Crowdfunding has a wide reach and may be utilized by businesses, nonprofit organizations, an individual, group, or an organization. Crowdfunding is used in a variety of platforms from social media to face-to-face environments. The use of crowdfunding has increased; however, success is not guaranteed.

Funds may be sought out to start a business, to support a cause, or to reach a fundraising goal. Most crowdfunding projects are small and "seek to raise small amounts of capital, often under $1000." [1] An individual or organization may not qualify for a traditional bank loan, and crowdfunding provides another opportunity to gain financial support from others. The use of crowdfunding has gained an increased presence since the JOBS Act and has a significant social media presence. "Approximately 25 percent of real-world relationships start online, with people of all ages migrating online to find a partner. Crowdfunding is doing for small businesses and entrepreneurs what dating sites have done for singles." [2] Those unable to procure funding from traditional methods may be interested in pursuing crowdfunding as an option; however, the success rate may be a deterrent. E. Mollick examined Kickstarter projects from 2009 through 2012 and found many projects were not successful as only "3% raise 50% of their goal," and he stated that successful projects succeed "by relatively small margins." [1]

Crowdfunding models

Crowdfunding is donation-based fundraising for businesses or creative projects, typically via an online funding portal. [3] Some but not all crowdfunding projects offer contributors rewards, which may differ based on the amount of money donated. Rewards can include copies of a creative work, products generated with the funding, special or personalized incentives (such as autographed works or promotional merchandise), or public recognition. One can classify crowdfunding as using one of the following models:

  1. Equity-based crowdfunding
  2. Reward-based crowdfunding
  3. Debt-based crowdfunding
  4. Litigation crowdfunding
  5. Donation-based crowdfunding

Equity-based crowdfunding

In equity crowdfunding, a crowdfunding approach is used to raise investment capital, and contributors receive equity in the resulting business. It is a joint effort made between individuals to support the causes of other people or organizations in the form of equity. Contributors may act as investors and receive shares directly, or the crowdfunding service may act as a nominated agent. [4] Equity crowdfunding helps "the 90 percent of businesses that were left out in the cold" by traditional funding methods, which is why it has become such a viable option for business startups. [2]

Equity-based funding is illegal in many countries, such as India. In the United States the JOBS Act of 2012 regulated the trend. This "legislation was intended to increase access to capital for the innovative companies" in need of investment capital and allows a pool of small investors to come together. [2] The Regulation was updated in 2021 by the SEC allowing companies to up to $5 million per year from unaccredited investors and allowing investors to invest more. [5]

Reward-based crowdfunding

This mode, also known as "non-equity" funding, has become increasingly popular, with a 230 percent increase in 2012. [2] Reward-based crowdfunding may fund campaigns supporting the free development of software, the promotion of motion pictures, scientific research, development of inventions, etc. Reward-based funders expect a return from the project.

Debt-based crowdfunding

This is known as "Peer to Peer", "P2P", "marketplace lending", or "crowdlending". Borrowers set up campaigns to fulfill their financial needs, and lenders contribute toward the goal for an interest. This method of online funding may prove to be "a threat to the traditional banking system in the areas of consumer and business loans, as has already been demonstrated by the rapid success of [these] online lending marketplaces." [2]

Litigation crowdfunding

A plaintiff requests a monetary donation to fund a court case. If the claimant wins, investors may get more than their initial investment. [3]

Donation-based crowdfunding

This type of crowdfunding "is part of a trend in which people are relying less on charities to help them fulfill their philanthropic aims". [6] The best example might be raising funds from individuals to support personal or social causes.

Variables in online crowdfunding

People make donations for different reasons and give to different entities. Donors may give to feel good about themselves or because they believe in a cause. Some donations are made to individuals while others are made to organizations. The same is true in online crowdfunding. However, some differences exist in their method of giving, geography, and demographics.

Online crowdfunding donors differ from traditional fundraising donors in that donors give anonymously, do not have a connection to the recipient, and donors may seek out a cause or recipient to give to. [7] Another important factor is that online donors are not limited by their geographic location and can give to individuals or organizations anywhere in the world. Once a fundraiser is created, individuals can share the details anywhere to attract donors and gather funds for their cause.When it comes to motives, donations are made to individuals to help them reach a goal and typically drop off once that is met; however, donations to organizations are made for a greater societal good. [7] The demographics of online donors vary from traditional donors as "online donors tend to be younger and give larger gifts than traditional donors." [8] This is important for online campaign organizers to note as they determine their target audience; however, those over 50 have increased their social media usage and have a presence on Facebook. [8]

Crowdfunding as a replacement method

More research is needed in regard to the topic of crowdfunding in general. There are benefits to online crowdfunding as it has the ability to tap into audiences that are not close in geographic proximity to an individual or organization and to increase awareness about a campaign. However, with relatively low funding success rates reported, "social networking and traditional approaches to fundraising may be complements" to help individuals and organizations raise funds but not a replacement." [8]

See also

Related Research Articles

Donation Gift given by physical or legal persons, typically for charitable purposes and/or to benefit a cause

A donation is a gift for charity, humanitarian aid, or to benefit a cause. A donation may take various forms, including money, alms, services, or goods such as clothing, toys, food, or vehicles. A donation may satisfy medical needs such as blood or organs for transplant.

Funding is the act of providing resources to finance a need, program, or project. While this is usually in the form of money, it can also take the form of effort or time from an organization or company. Generally, this word is used when a firm uses its internal reserves to satisfy its necessity for cash, while the term financing is used when the firm acquires capital from external sources.

Fundraising Process of gathering voluntary contributions of money or other resources

Fundraising or fund-raising is the process of seeking and gathering voluntary financial contributions by engaging individuals, businesses, charitable foundations, or governmental agencies. Although fundraising typically refers to efforts to gather money for non-profit organizations, it is sometimes used to refer to the identification and solicitation of investors or other sources of capital for for-profit enterprises.

Social venture capital is a form of investment funding that is usually funded by a group of social venture capitalists or an impact investor to provide seed-funding investment, usually in a for-profit social enterprise, in return to achieve an outsized gain in financial return while delivering social impact to the world. There are various organizations, such as Venture Philanthropy (VP) companies and nonprofit organizations, that deploy a simple venture capital strategy model to fund nonprofit events, social enterprises, or activities that deliver a high social impact or a strong social causes for their existence. There are also regionally focused organizations that target a specific region of the world, to help build and support the local community in a social cause.

Givology.org is an online giving marketplace through which any Internet user can browse and sponsor students and education projects in the developing world. Founded in 2008 by undergraduate students at the University of Pennsylvania, Givology currently has 501(c)3 tax-exempt status. It is the first education crowdfunding platform.

Crowdrise

CrowdRise is a for-profit crowdfunding platform that raises charitable donations. CrowdRise was founded by Edward Norton, Shauna Robertson, and the founders of Moosejaw, Robert and Jeffrey Wolfe. CrowdRise was acquired in 2017 by GoFundMe.

Indiegogo American crowdfunding website

Indiegogo is an American crowdfunding website founded in 2008 by Danae Ringelmann, Slava Rubin, and Eric Schell. Its headquarters are in San Francisco, California. The site is one of the first sites to offer crowd funding. Indiegogo allows people to solicit funds for an idea, charity, or start-up business. Indiegogo charges a 5% fee on contributions. This charge is in addition to Stripe credit card processing charges of 3% + $0.30 per transaction. Fifteen million people visit the site each month.

Funding4Learning

Funding4Learning is a "human capital oriented" crowd funding platform for educational projects. Funding4Learning provides its users with fundraising tools for study, volunteering, as well as a diverse array of education related initiatives.

GlobalGiving is 501(c)(3) non-profit organization based in the United States that provides a global crowdfunding platform for grassroots charitable projects. Since 2002, more than 1.1M donors on GlobalGiving have donated move than $530 million to support more than 28,000 projects in 170 countries.

InvestedIn is a crowd funding website for fund raising projects and charity events such as walkathons and celebrity cause-based campaigns. InvestedIn is also a technology provider offering a white label crowdfunding platform for commercial and non-profit use.

MicroVentures is an equity crowdfunding website offering investments in early stage companies. MicroVentures connects accredited investors with startups, businesses and services looking to raise funds or participate in select secondary market opportunities. It is the only major equity crowdfunding site that is a broker-dealer registered by the Financial Industry Regulatory Authority (FINRA) and the first to take a portfolio company to a successful exit. As of October 2013, MicroVentures had raised $20 million, spread among 45 companies including Twitter, Facebook, and Yelp.

Crowdcube is a British investment crowdfunding platform, established by Darren Westlake and Luke Lang in 2011.

Fundly

Fundly is a crowdfunding site for online fundraising. It allows non-profits, charities, politics, clubs, schools, teams, churches, and other causes to raise money online from friends, family, colleagues, donors, and other supporters via email, Facebook, Twitter, LinkedIn, Google, and social media networks. It is also an app for social networks like Facebook and LinkedIn. It uses WePay to process donations. Donors are charged when they make a donation. Other sites like Fundly include GoGetFunding, Indiegogo and Kickstarter.

Tilt.com

Founded in 2012, Tilt was a crowdfunding company that allowed for groups and communities to collect, fundraise, or pool money online. James Beshara and Khaled Hussein launched the platform under the name Crowdtilt in February 2012 out of Y Combinator.

Garnering funds in the form of donations has always been a major focus for university leaders. These donations are usually found in the form of large annual gifts by alumni and friends of universities, along with funding from government entities for public universities. More recently, universities have been taking steps to modernize their giving structure through the use of crowdfunding. Crowdfunding is an online tool utilizing peer-to-peer relationships to help gain funds for different aspects of university culture.

Ketto

Ketto is an Indian online crowdfunding platform, where any individual/organ across the country can raise funds for causes ranging from medical healthcare to disaster relief. Individuals, entrepreneurs and NGOs can raise funds to achieve personal goals, pay medical bills, make a movie or support their favourite local sports team or gymkhana. From 2012 to July 2020, over ₹11 billion has been raised, from around two hundred thousand campaigns backed by more than 5.5 million donors. The company headquarters located in Mumbai, Maharashtra, India, with social worker representatives spread all across the country.

Equity crowdfunding is the online offering of private company securities to a group of people for investment and therefore it is a part of the capital markets. Because equity crowdfunding involves investment into a commercial enterprise, it is often subject to securities and financial regulation. Equity crowdfunding is also referred to as crowdinvesting, investment crowdfunding, or crowd equity.

Alternative finance refers to financial channels, processes, and instruments that have emerged outside of the traditional finance system such as regulated banks and capital markets. Examples of alternative financing activities through 'online marketplaces' are reward-based crowdfunding, equity crowdfunding, revenue-based financing, online lenders, peer-to-peer consumer and business lending, and invoice trading third party payment platforms.

Crowdfunding is the practice of funding a project or venture by raising small amounts of money from a large number of people, in modern times typically via the Internet. Crowdfunding is a form of crowdsourcing and alternative finance. In 2015, over US$34 billion were raised worldwide by crowdfunding.

Stardust Startups is a women-run non-profit organization and Donor-Advised Fund founded in 2015 that provides financial, moral, and social support for emerging entrepreneurs and early-stage startups making positive social and environmental impact in the areas of sustainability, health, and learning. Since its start, the organization has supported 25 projects in 11 countries with microgrants, networking, and mentorship.

References

  1. 1 2 3 Mollick, E. (2014). The dynamics of crowdfunding: An exploratory study. Journal of Business Venturing. Vol. 29, pp. 1–16.
  2. 1 2 3 4 5 Hollas, J. (2013). Is crowdfunding now a threat to traditional finance? Corporate Finance Review. Vol 18, issue 1, pp. 27–31.
  3. 1 2 "The Beginners Guide To Crowdfunding". milaap.org. Retrieved April 16, 2018.
  4. ↑ "Der Treasurer". cfo-insight.com. Archived from the original on April 26, 2013.
  5. ↑ "SEC.gov | Regulation Crowdfunding". www.sec.gov. Retrieved October 24, 2021.
  6. ↑ The future of fundraising: Is crowdfunding the wave of the future? (2016). Third Sector. October 1, 2016. 29.
  7. 1 2 Gleasure, Rob; Feller, Joseph (2016). "Does Heart or Head Rule Donor Behaviors in Charitable Crowdfunding Markets?". International Journal of Electronic Commerce. 20 (4): 499. doi:10.1080/10864415.2016.1171975.
  8. 1 2 3 Saxton, Gregory D; Wang, Lili (2013). "The Social Network Effect". Nonprofit and Voluntary Sector Quarterly. 43 (5): 850. doi:10.1177/0899764013485159.


This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.