Crowdfunding:
- Lending-Based Crowdfunding
(Debt-based Crowdfunding, Lending Crowdfunding, Crowdlending, P2PL)
- Reward-Based Crowdfunding
(Rewards Crowdfunding, Crowdsupporting, Crowdsponsoring, Fundraising)
- Equity-Based Crowdfunding
(Equity Crowdfunding, Crowdinvesting)
- Donation-Based Crowdfunding
(Donation Crowdfunding, Crowddonating)
Types
The Crowdfunding Centre's May 2014 report identified the existence of two primary types of crowdfunding:
Rewards Crowdfunding: entrepreneurs pre-sell a product or service to launch a business concept without incurring debt or sacrificing equity/shares.
Equity Crowdfunding: the backer receives shares of a company, usually in its early stages, in exchange for the money pledged. The company's success is determined by how successfully it can demonstrate its viability.
Rewards-based
Reward-based crowdfunding has been used for a wide range of purposes, including motion picture promotion, free software development, inventions development, scientific research, and civic projects.
For a joint study between Toronto, Canada's York University and Universite Lille Nord de France, in Lille, France, published on June 2, 2014, two types of reward-based crowdfunding were identified: "'Keep-it-All' (KIA) where the entrepreneurial firm sets a fundraising goal and keeps the entire amount raised regardless of whether or not they meet their goal, and 'All-or-Nothing' (AON) where the entrepreneurial firm sets a fundraising goal and keeps nothing unless the goal is achieved." The study's researchers analyzed 22,875 crowdfunding campaigns, with targets of between US$5,000 and US$200,000, and concluded: "Overall, [all-or-nothing] fundraising campaigns involved substantially larger capital goals, and were much more likely to be successful at achieving their goals." In its review of the study outcomes, the Inc.com publication explained that potential investors are more inclined to support "all-or-nothing strategy" initiatives, whereby a substandard product will not be released if the funding goal is not achieved. The Inc.com review concluded that "AON" campaign typically provide more detailed information on the campaign.
Equity
Equity crowdfunding is the collective effort of individuals to support efforts initiated by other people or organizations through the provision of finance in the form of equity. In the United States, legislation that is mentioned in the 2012 JOBS Act will allow for a wider pool of small investors with fewer restrictions following the implementation of the act.
Debt-based
Debt-based crowdfunding (also known as "peer to peer", "P2P", "marketplace lending", or "crowdlending") arose with the founding of Zopa in the UK in 2005 and in the US in 2006, with the launches of Lending Club and Prosper.com.
Borrowers apply online, generally for free, and their application is reviewed and verified by the platform software, which also determines the borrower's credit risk and interest rate. Investors buy into securities, which in turn makes the loans to individual borrowers or bundles of borrowers. Investors make money from interest on the unsecured loans; the platforms make money by taking a percentage of the loan and a loan servicing fee.
In 2009, institutional investors entered the P2P lending arena; for example in 2013 Google invested $125 million in Lending Club.
In 2014 in the US, P2P lending totalled about $5B. In 2014 in the UK, P2P platforms lent businesses £749m, a growth of 250% from 2012 to 2014, and lent retail customers £547m, a growth of 108% from 2012 to 2014.:23 In both countries, in 2014 about 75% of all the money transferred through crowdfunding went through P2P platforms. Lending Club went public in December 2014 at a valuation of around $9 billion.
Litigation
Litigation crowdfunding allows individuals to invest in legal disputes, globally, allowing those in need of litigation funding anywhere in the world to obtain it from their peers. Individuals are given a stake in the claim they have funded, which allows individual funders to multiply their investment in justice many times over if a case succeeds.
Charity
Charity crowdfunding is the collective effort of individuals to help charitable causes.
Wikipedia contributors, "Crowdfunding," Wikipedia, The Free Encyclopedia, en.wikipedia.org/w/index.php?title=Crowdfunding&oldid=678668507 (accessed September 1, 2015).
