The range of different financing models for growth has never been greater. Today we see everything from traditional forms of financing such as soft funds, bank loans or venture capital to a plethora of models enabled by digital technologies. Crowdfunding via digital platforms, also known as grassroots funding, is a rapidly growing model for financing an idea, product or service. The model relies on external funding from individuals or companies and has been highlighted during the corona pandemic as a way to get businesses through the corona crisis.
Different types of crowdfunding
There are different types of crowdfunding today and it is important to find the model that suits the goals and objectives that have been set. For example:
Reward-funded crowdfunding: is based on funding being linked to some form of reward for contributors. The reward could be, for example, access to the new product or service before it is launched on the market.
Donation-based crowdfunding: is based on pure donations with no promise of anything in return for the funder. This model usually relies on the personal commitment of the person who chooses to contribute.
Equity crowdfunding: is based on people buying shares in the company. This gives the investor a chance to share in future returns given that the share price rises.
Examples of crowdfunding platforms:
FundedByMe - a Swedish platform for equity crowdfunding. FundedByMe will merge with Pepins in 2022.
Kickstarter - a platform for donation-based crowdfunding.
Indiegogo - a donation-based platform.
Patreon - a platform based on a subscription model instead of single donations. Patreon is popular with artists and influencers, for example.
Circleup - a shareholder-based platform for start-ups seeking funding for growth and development.
Reflection questions: crowdfunding
To be successful in crowdfunding, it is important to have a clear goal and purpose and to create a budget that shows the campaign's costs in terms of, for example, marketing, equipment and venue hire.
Given that you and your business are interested in using crowdfunding as a funding model, it is important to analyse which of the models best suits your purpose.
- How do the different models differ (in terms of, for example: fees and offers)?
- Which model(s) fits your business, goals and objectives?
Finally, another important aspect is how you market and disseminate your campaign.
- What are your networks like (where are they, what are their strengths and weaknesses)?
- Which social media and other internet forums do you think are good channels for you to reach out with your crowdfunding campaign?
Crowdfunding during the corona pandemic: read and listen
Tourism companies in Gällivare: https://sverigesradio.se/artikel/7632895
FoundedByMe in Helsingborg: https://www.mynewsdesk.com/se/helsingborg/pressreleases/fundedbyme-och-helsingborgs-stad-ingaar-samarbete-avseende-donationsbaserad-crowdfunding-2989509
