Crowdfunding Models

Crowdfunding is the raising of funds through the collection of small contributions from the general public (known as the crowd) using the Internet and social media.

Crowdfunding Models

The Donation Model: Individuals make a financial contribution to a project without any expectation of a financial return on that contribution. Projects and platforms that employ the donation model typically also use a reward or incentive system to help stimulate contributions whereby contributors are thanked for their support with a small reward. Rewards or incentives vary from recognition in the project’s credits to branded merchandise or opportunities to meet with creators and/or attend special events such as a launch party or premiere screening event. Rewards or incentives often increase in number and/or value in accordance with the amount of the contribution being given.

The Lending Model: This crowdfunding model is similar to any typical lending scenario, where individuals lend money to a project or company with the expectation that it will be repaid. In the context of crowdfunding, the lending model can take a number of forms, such as:

  • A traditional lending agreement – standard terms are used and there is an expectation for a monetary reimbursement in the form of interest. In this case, the loans may or may not be guaranteed, depending on the crowdfunding platform being used.
  • A forgivable loan – contributions are reimbursed to the lender only if one of two possible conditions is met: a) if and when the project begins to generate revenue or b) if and when the project begins to make a profit.
  • Pre-sales – the finished product is promised in return for the contributor’s pledge. In the case of a pre-sale lending model, the contribution amounts are determined according to an assessment of the fair market value of the product. In addition, larger contribution amounts are typically accompanied by a promise of more copies of the product equal to the value of the amount of the contribution. Pre-sales are often combined with a rewards-based donation model.

The Investment Model: Resembles a standard equity investment, where an individual receives equity in an entity in return for financing. There are two standard sub-categories of Investment Model crowdfunding:

  • Securities Investment Model – shares in the company are bought by investors. In this model, contributors would be buying ownership in the parent company or rights in a project.
  • Profit or Revenue-sharing Model – a share of the revenue or profits of the project is earned by investors, as opposed to shares in the underlying company. This is also known as a ‘Collective Investment Scheme’.

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HEADLINE NEWS

Jamaica GleanerPointers to Publishing | Consider crowdfunding to finance your bookJamaica GleanerYou have great ideas but do not have the funds, or you do not want to take the risk of taking a loan or asking for financial support from family. Crowdfunding might be your best bet, and t [...]

The VergeDonald Trump's terrible crowdfunding site was a microcosm of his political careerThe VergeAnd from the beginning, the site had Trump's populist edge. Zanker boasted that “the reign of Kickstarter's Brooklyn hipsters is over,” referring to Kickstarter's New [...]

FortuneCrowdfunding: Women Better at Raising Money Than Men Are ...FortuneA new study has found that women are generally better than men at crowdfunding.Women are better at crowdfunding than men, shows study | The ...The Independentall 3 news articles » [...]

Social media, crowdfunding skirmishes encapsulate Endy debateThe Herald JournalAfter that, a campaign with the same goals and the same organizer appeared on a separate crowdfunding site, FundRazr.com. This campaign also drew negative attention on social media, and after a few hours th [...]

ForbesWhy Crowdfunding Is Still Booming, Especially For Chinese Tech CompaniesForbesBased on recent media reports, it looks like crowdfunding is now in the "disillusionment" phase of the famous Gartner hype cycle, after peaking a few years back. I will argue that crowdfundin [...]

Wired.co.ukAfter budget cuts, museums are crowdfunding to preserve historyWired.co.ukIn 2015, the Smithsonian National Air and Space Museum in Washington, D.C. launched its very first crowdfunding campaign to 'Reboot the Suit'. The idea was to raise much-need funds to conser [...]

Business Daily (press release) (blog)How Women Trounce Men When Raising Seed Crowdfunding CapitalForbesMale entrepreneurs may account for the majority of business owners raising finance on crowdfunding platforms in the UK, but their female counterparts are far more likely to get the s [...]

Yahoo SportsCan crowdfunding save women's college hockey? - Yahoo SportsYahoo SportsNorth Dakota cut its women's hockey program in March, in one of the saddest and most stunning decisions to rock the sport at the collegiate level. “When you ...and more » [...]

road.ccCanadian cyclist charged with fraud after crowdfunding fake booby trap injuriesroad.ccA cyclist who pretended to have been injured by a barbed wire booby trap and asked for cash on a crowdfunding website has been charged with fraud and public mischief. Stelianos Psaroudakis, 37 [...]

ReutersStudy says women are better at crowdfunding - ReutersReutersWomen around the world are less likely than men to tap the crowd online for money to fund their businesses and projects, but when they do they are likely to.and more » [...]

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