Crowdfunding Across the Four Colors of Money

Crowdfunding Across the Four Colors of Money

Did you know that you can use crowdfunding for bootstrapping, grants, debt or equity? It’s true! The crowdfunding industry has names for these four “colors” of fundraising:

  • Rewards Based Crowdfunding (bootstrapping)
  • Donation Based Crowfunding (grants)
  • Peer to Peer Lending or Debt Crowdfunding (debt)
  • Equity Crowdfunding (equity… of course!)

Here’s a quick look at top business crowdfunding platforms for each color of money.

Bootstrap Crowdfunding

The most widely known crowdfunding platform is Kickstarter. Typically, young companies have almost completed a product or creative project, and they need additional funding to launch. Customers pledge money, and in return they get early access to the product or creative project. In addition, for higher financial pledges customers can get special “extras.”

The most important type of bootstrapping is customers that pay early for products.

Kickstarter campaignSometimes, though, for low pledges Kickstarter funders just get a “thank you” or a knick knack, which is basically a grant since the funder doesn’t get the actual product.

Kickstarter and Indiegogo dominate Bootstrap Crowdfunding, but there are others. Patreon financially connects fans (customers) of musicians and other creatives through monthly funding. PledgeMusic is similar and quite popular. Seed&Spark is video and film focused.

Grant Crowdfunding

As mentioned above, some of the rewards based crowdfunding campaigns mix “grants for knick knacks” with “bootstrapping with early products for customers.” Most of the large Donation Based Crowdfunding platforms are for personal or non-profit grants, not business grants.

Giant GoFundMe says it has raised more than $4 billion for individuals and charities. Giveforward and Youcaring have merged their two businesses and collectively have raised $900+ million (Youcaring is the surviving brand).

Debt Crowdfunding

The debt crowdfunding space has changed rapidly over the last four years. Early platforms called themselves Peer to Peer Lending, since individuals with extra cash could lend to other individuals or businesses.

As the debt crowdfunding pioneers scaled rapidly they needed massive amounts of capital to lend. Most of the leaders turned to institutional funders to source capital, and now call themselves marketplace lending platforms. Funding Circle, Lending Club and OnDeck fall in this category among marketplace lending platforms that serve small business debt needs.

To add a bit to the confusion, there are many other online debt platforms that aren’t really crowdfunding platforms at all. The online loan market is growing dramatically, both for businesses and consumers, but pure debt crowdfunding – that is to say, peer to peer lending – is less and less a driver of that growth.

Suggested Reading: 25 Online Business Loan Companies To Consider

Equity Crowdfunding

Regulation prevented widespread equity crowdfunding until recently in the US. It’s now in the “Wild West” phase of crazy expansion. Here are the top six companies to consider, although new players may overtake them in time:

  • AngelList
  • SeedInvest
  • Start Engine
  • WeFunder
  • Indiegogo/MicroVentures
  • Fundable

17 Equity Crowdfunding Platforms

For links and more information on these, see Top 17 Equity Crowdfunding Sites

In theory anyone can buy shares in any company through an equity crowdfunding platform. In practice, equity crowdfunding is a financing niche that is right for some companies but not for all.

Also, we’ve noticed that equity crowdfunding platforms often offer Revenue Share financing, which is debt with some similarities to equity. Companies that are looking at equity crowdfunding should make sure they also look at the Revenue Share options to see which makes more sense.

So expect to see “Equity and Debt Crowdfunding” emerge as an important category of platform for financing businesses.

Further Reading: Revenue Based Financing: 5 Different Options, Marketing Confusion

 

Don Gooding

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