Crowdfunding is a way for companies to raise money by collecting small, individual contributions from a large pool of donors through online platforms such as Kickstarter, GoFundMe and social networks.
The three main crowdfunding models are:
- Equity crowdfunding—In exchange for their money, investors receive either shares in a company or the right to a portion of revenues or profits from a specific product. This model is usually best for early stage companies that want to grow.
- Debt crowdfunding—In this model, investors lend their money to a company at relatively high interest rates. Because each individual amount they lend is small, they mitigate their overall lending risk by spreading a large amount of money in small increments across a large number of loans.
- Donation/rewards-based crowdfunding—Here, a company sets a fundraising target and asks for donations—in exchange for some kind of token or receipt of the eventual product or service to be developed. If the target is not met, the funds are returned to the investors.
The website of Futurpreneur Canada (www.futurpreneur.ca) has more information about crowdfunding.