Guide

Crowdfunding

Types of crowdfunding

There are different crowdfunding options to choose from. Each type has different benefits for businesses and investors. You will need to consider which one is right for your business, project or venture.

Reward crowdfunding

Reward crowdfunding allows investors to contribute to your venture in return for non–financial benefits.

This type of funding is commonly used for creative projects. It usually operates as a tired system – the more an investor donates to your fund, the greater the reward they will receive (eg credits on a record cover, tickets to an event, free gifts etc). A benefit to the business is that the reward doesn’t usually cost much to deliver.

Debt crowdfunding

Debt crowdfunding provides investors with the chance to fund your project in exchange for financial interest on their investment.

This finance option may provide you with borrowing at a lower cost than that offered by applying for a loan through a bank. The advantage of this model is that it may be easier to win support for a campaign, as the backers are attracted to getting a return. This type of crowdfunding may work best for businesses with a track-record of revenues.

Equity crowdfunding

An equity crowdfunder will invest money in return for shares, or a small stake in your business, project or venture.

This type of crowdfunding could work best for growth-focused companies in areas where there is potential for return.

Donation crowdfunding

This type of crowdfunding is designed for charities, or those who raise money for social or charitable projects, to gather a community online and to enable them to donate to a project.

While most established charities coordinate this through their own website, crowdfunding platforms can be useful for smaller organisations and people raising money for personal or specific charitable causes.

NESTA (National Endowment for Science, Technology and the Arts) has published crowdfunding guidance which provides further information on the different types of crowdfunding, statistics, examples and key considerations.