Four kinds of crowdfunding. And a lemon tree.
We just wanted to clear this one up once and for all. Yes, there are a few different kinds of crowdfunding. Here’s a simple metaphor to explain them.
Let’s say I have a lemon tree. There are a few paths I can go down to ask for support.
(note: all of these examples are fictional)
Donations
I could ask you to donate towards the cause of sustaining the tree. Unlike, the other forms of crowdfunding, I wouldn’t provide any rewards for your donation.
Lemon tree in danger
The lemon tree on the corner of Main and Second has been providing shade and lemons to the town for over 20 years. When I was 10 years old, I remember climbing up to grab the first lemon of the season and I felt like the king of the world. Now, it needs our help. To allow the tree’s root structure to continue growing further, we are raising funds to re-route the walkway. If you’ve ever smelt the tree as you walked past to the milk bar, or you’ve ever had some of Sandy’s lemonade, please consider donating today.
Projects
I could also ask you for a small amount to go towards the tree and, when it bears fruit, you would get a number of lemons, based on how much support you had provided.
Get your lemons
Mrs Bartram’s year 7 class has been cultivating a lemon tree. They are raising funds to pay for the equipment and consumables needed to have a bumper crop by the time they’re in year 9. Talk to Leah about how much support you would like to give and 7B will make sure life gives you lemons!
Loans
I could also ask you to lend me money so that I could commercialise the tree. Then, when it bears fruit and I sell them at the market, I would return to you the money you lent me plus some interest. (You might also get some lemons!)
Can I borrow a cup of sugar?
The Lemon Institute is looking to borrow some funds to take their lemon tree even further. After successfully propagating the tree, they’re now looking to make the most of the tree’s fruit. With a solid business plan, they have shown how they plan to take the fruit to market with existing customers and pay back the loan within the term defined. Depending on how much you put in, you may be eligible to receive some lemons too!
Equity
I could also ask you to invest in the business of the tree. This means that you would own a small part of the business. (You might also get some lemons!)
stallxlemon seeks investment
The stall beneath the lemon tree is rebranding to stallxlemon and, following on after their successful launch with lemonade, they’re looking to expand the premises further into a full-service cafe. They’ll still serve their famous drinkxlemon but they’ll be adding coffee and baked goods (like friandxlemon and the much awaited cronutxlemon) to their range. Rewards available for different levels of investment ranging from partyxlemon event invitations to a lifetime supply of drinkxlemon.
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You can see how a lemon tree owner might go down any of these paths. And so too do the organisations who engage in crowdfunding. They don’t choose lightly. Maybe this will give you some insight into why they chose the path they did.
In New Zealand, we facilitate project-based crowdfunding, debt crowdfunding, and equity crowdfunding. In Australia, we facilitate equity crowdfunding.
If a company you love is crowdfunding, understand what they’re asking for and see if it makes sense to offer your support.
