Just like equity capital is raised by a business giving shareholders ownership based on the number of shares bought, equity crowdfunding refers to offering private online securities or shares through a crowdfunding platform.
Unlike other types of crowdfunding methods, debt crowdfunding is seen as a lower-risk investment option for the person contributing the funds. The repayment schedule is already decided and the amount of returns you will get is also predetermined.
It is exactly what it sounds like; reward-based crowdfunding is pledging or giving money to a business in return for a product or service at a later stage. This crowdfunding type is generally used to launch new products or services and test how well the market responds to an idea.
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Rather than seeking funding from investors or crowdfunding platforms, a business can establish a revolving credit line with a financial institution, such as a bank or a fintech company. While the goal of crowdfunding might be a little different from that of getting a credit line, both these solutions help your business gain access to capital that can help you carry out business operations.
When choosing a crowdfunding platform for your startup, you should know why and how you plan to implement your capital, whether you want to give ownership of your company in the form of equity or not.
You should also know the legal and regulatory compliance in regard to the crowdfunding activity that you plan to conduct. You must especially be aware of the tax implications of the money that you raise through crowdfunding.
When choosing a fundraising platform in India, make sure you do your research to check the legitimacy of the platform and ensure that it is a legal entity that has a good reputation.
Since the ‘crowd’ is going to be funding your project/product on a crowdfunding platform, make sure you also research the type of audience and people that exist on a portal. It should be people who are or might have an interest in the type of crowdfunding campaign that you plan to launch. Choose platforms that attract potential investors who will be interested in your product.
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You need to be smart about setting your funding goal as certain platforms like Kickstarter do not give you the raised money if it is below the target you set for yourself. It will be returned to the people who fund a particular amount.
Every crowdfunding platform charges a commission fee in order to run and process the entire crowdfunding campaign on its site. Make sure you check what the commission percentage is before you decide to start a campaign.
