A Brief Guide to Crowdfunding
Crowdfunding refers to the method of raising funds for a venture or project by receiving small quantities of money from a large section of participants. Presently, crowdfunding has become mainstream, and the number of online crowdfunding sites appears to be on the higher side.
With start-ups, crowdfunding is the new norm. However, there is no dearth of entrepreneurs, investors, or people from other backgrounds in the crowdfunding space. Crowdfunding is a unique opportunity for investors without access to massive amounts of money. It is the ideal choice for those who want to be a part of start-ups or small companies.
Crowdfunding has been especially disruptive for the real estate sector. The real estate industry has traditionally been reluctant towards embracing or leveraging modern technologies. Consequently, the industry continued to suffer from long-standing concerns. One among them was the restricted access to premium-quality deals. Crowdfunding has brought in changes to the scenario as investors could be part of top deals by investing small amounts.
The Initial Barriers
Like cryptocurrency, crowdfunding faced significant criticism from critics which revolved around the feasibility with which crowdfunding platforms could be misused. In the technology-powered world, crowdfunding becomes easier and practical as the internet gives us access to huge networks of wealthy individuals. Earlier, without any internet, there was limited access to potential investors. Also, there was less awareness of different types of crowdfunding platforms and other technical details. The decision on choosing a crowdfunding platform should be based on one’s risk tolerance.
The Crowdfunding Platforms
The prominent names among crowdfunding platforms include Reward-based, Equity-based, Debt-based, and Blockchain crowdfunding. All four platforms extend different advantages and risks for the investors. Let us explore some of the features of these platforms.
As far as reward-based platforms are concerned, money would be taken as donations or pledges. In return, you are likely to receive perks or advantages from the business. The pledge and reward are directly proportional to each other.
Equity-based Crowdfunding
As far as equity-based crowdfunding is concerned, investments in businesses are facilitated in exchange for equity concerning those businesses. There are certain legal criteria to be met with which seldom are complicated and mostly would be restricted to completing online questionnaires.
Scams are rare on equity-based crowdfunding platforms. The platform would verify a business entry even before the campaign launch.
Debt-based Crowdfunding
Peer-to-peer or debt-based crowdfunding extends two crucial advantages: access to massive numbers of people and administrative benefits. Investor’s money is placed into funds managed by equity platforms. The money is then given as loans to businesses in search of capital. The decision on which businesses to invest in would either be taken by the investor or it would be an automatic selection by the platform.
Debt-based crowdfunding may not be the perfect option for new start-ups without significant collateral. It is ideal for investors with increased levels of risk tolerance.
Blockchain Crowdfunding
Blockchain crowdfunding is the least known amongst the four different types of crowdfunding. Similar platforms make an effort to leverage the power of cryptocurrencies to make money from new tokens during the process known as ICOs, or the initial Coin Offerings.
To be successful in blockchain crowdfunding, in-depth knowledge of cryptocurrencies and their underlying technology, the blockchain is essential.
