There are several models that have arisen, and these can be summarized as follows:
Reward based – where the investor receives a form of reward which may be of little value, and can even be akin to a donation.
Loan based – where the investor gets a return of their money, with varying amounts of interest.
Equity based – the investor expects to get the return of their investment, with other rewards or intangible benefits.
Some models operate in specific sectors, and have a particular focus. However, what they all have in common is an on-line platform, which brings investors together with the business or project seeking investment, and all tend to focus on a low cost, transparent and customer friendly approach.
Perhaps the most exciting benefit of the crowdfunding explosion is the expected re-investment in small businesses nationwide. With this source of capital, new entrepreneurs will hopefully decide to pursue their business dreams. Companies that will provide services and products to these new businesses certainly hope the same.
 | What is crowdfunding and how does it work? Crowdfunding is an alternative method of raising finance for a business, project or idea, popularized by Kickstarter.com in the United States. Unlike angel investment, in which one person typically takes a larger stake in a small business, with crowdfunding an entrepreneur can attract a ‘crowd’ of people – each of whom takes a small stake in a business idea, by contributing towards an online funding target. It is believed that, in many cases, this model is more successful than attempting to source the full investment required from a single individual or organization. Furthermore, while some investors may be hesitant to invest in an unproven idea, crowdfunding provides an alternative way to source seed capital from a number of backers. This is explained further in http://www.microventures.com. |
