Interested in raising capital through crowdfunding? We’re not surprised. After all, crowdfunding comes with some pretty sweet advantages. The crowdfunding process is quick and simple – often entirely online. Because crowdfunding requires no collateral, it is a great alternative to traditional financing products.
There are three major forms of crowdfunding: rewards-based crowdfunding, equity crowdfunding, and peer-to-peer (P2P) financing. Each form serves a different purpose and targets a different demographic, so it is crucial that you pick the right crowdfunding product. Which one is your match? Below, we have provided a handy list for you to use. Read on!
- Rewards-based crowdfunding is for you if you are trying to pitch a project. Its overall purpose is not to fund your business.
- Rewards-based crowdfunding is ideal for those in the creative or artistic field, or those developing new products and technology before starting production.
- This is a crowdfunding form that requires effort on your part. You need to create a business plan for your brand and your project, you need to do research, think about legal and tax issues in advance, plan the rewards you will offer your supporters, and craft a compelling story or video to market your project and entice new backers. For more details, check out this Forbes article.
- Costs include: reward and shipping costs, income taxes, and platform fees.
- Key global platforms include Kickstarter and Indiegogo.
- Equity crowdfunding’s primary purpose is to fund startups with strong growth potential.
- Because equity crowdfunding is essentially a barter of company shares for funds, ask yourself: are you willing to part ways with company shares? Are you someone who likes to be in control of your company? If you are indeed willing to let go of company stocks and are looking to raise a large amount of funds, then equity crowdfunding is for you.
- Like rewards-based crowdfunding, equity crowdfunding requires effort on your part. Your startup may be very promising, but you still need to pitch its worth to potential investors on your chosen platform.
- Costs include platform fees and of course, partial ownership of your business.
- Key global platforms include: AngelList and CircleUp.
Peer-to-peer (P2P) financing
- P2P financing provides competitive rates and requires no collateral.
- It is especially useful for SMEs and the underbanked segment.
- Ideal for small businesses searching for short-term financing to strengthen cash flow, expand their companies, or finance a new project.
- Here’s an example: businesses with income tied in accounts receivable are a great target segment for P2P financing as they can have quick funds through invoice financing and start new projects while they wait to get paid.
- A good option for younger, smaller, and revenue-generating companies, but with no suitable assets for secured financing.
- P2P financing platforms in Malaysia can raise up to around RM 500,000.
- Requires less effort on your part compared to rewards-based crowdfunding and equity crowdfunding. Your chosen P2P platform will assess your company to see if you are suitable for financing and take care of the rest. You don’t need to market your funding needs.
- Costs include platform fees and total interest.
See the table below for more detail: