The 5 Main Types of Crowdfunding

Crowdfunding companies have built websites that are designed to connect an audience in need of funding with those who have money to share. Whether you’re looking to invest or donate then a crowdfunding website is a great place to locate your next project. Different websites offer different types of funding and support varying types of pitch. In what can feel like a complicated world of investment and banking, crowdfunding is relatively easy to access and be a part of.

Since crowdfunding’s advent in 1997, four distinct types of crowdfunding have emerged within the industry. With very different terms and requirements, it’s necessary to understand the nuances involved with each branch of crowdyfunding so as to choose the path most relevant to your goals and needs.

1. Rewards Crowdfunding

Rewards-based crowdfunding is the most common type of crowdfunding option available. This type of crowdfunding involves setting varying levels of rewards that correspond to pledge amounts. A standard rewards campaign offers at least three levels of pledges/rewards.

Rewards campaigns tend to work well for client-facing, tangible products who require relatively small amounts of funding and typically last for 1–3 months.

2. Equity Crowdfunding

Equity crowdfunding is the exchange of actual shares in a private company for capital. In this form of crowdfunding, entrepreneurs can set investor caps, minimum pledge amounts, etc. as well as approve or deny investors who wish to view their business documents.

Equity campaigns are typically several months or longer in length and fit well with startups seeking a fairly large amount of funding.

3. Donation Crowdfunding

Donation crowdfunding is exactly what it sounds like — the campaigns amass donations without being required to provide anything of value in return. This type of campaign serves social causes and charities best, like what Ketto does.

Donation campaigns are often 1–3 months in length and work well for amounts under $10,000.

4. Lending Crowdfunding

Lending based crowdfunding allows entrepreneurs to raise funds in the form of loans that they will pay back to the lenders over a pre-determined timeline with a set interest rate.

Lending campaigns tend to take place over a shorter timespan of around five weeks and works well for entrepreneurs who don’t want to give up equity in their startup immediately.

5. Software Value Token

A token sale is like a crowdfunding campaign, except it uses the technology behind Bitcoin to verify transactions. In a nutshell, projects launch an Initial Coin Offering (ICO) by issuing crypto-tokens on the blockchain, giving early investors the chance to acquire tokens in exchange for cryptocurrency.

Crypto-tokens have become an easy way for blockchain startups to fund their projects early in the development cycle, and for regular users and enthusiasts to invest in projects of potential value and have a say on how their future is shaped.

Ketto Blog remains committed to inspiring and compelling social change to India’s most pressing problems through the power of great stories and engaging our audiences to take meaningful action.