Debt financing through a variety of capital providers is worthwhile for companies when they want to test their products in public. Discover alternatives.
Crowdfunding is a type of financing in which companies, as well as private or non-profit projects, are provided with capital by a large number of individuals. This happens against a success fee on certain online platforms, on which initiators turn to the public with their startup or project to attract potential investors.
The close proximity to customers is a major advantage of crowdfunding. Initiators receive valuable feedback, create inimitable customer loyalty and benefit from word-of-mouth effects at an early stage. Flexibility also plays an essential role for companies, as the legal form and creditworthiness of the company do not play a role in crowdfunding. Disadvantages include the risk of success, duration, full disclosure of your idea, as well as platform fees in the case of success.
Those who want to financially kick-start their business through crowdfunding must first create and advertise a campaign on one of the popular crowdfunding platforms. Projects that do not reach the target budget receive nothing at all. If a project is successful, the capital is made available and the implementation begins.
Equity Based Crowdfunding
Investors receive returns on the capital provided, similar to equity investment. Returns can be performance-based or fixed in advance.
Reward Based Crowdfunding
Instead of financial compensation, investors receive non-cash benefits, such as the product itself or intangible assets, such as a name.
Donation Based Crowdfunding
As the name suggests, this is a donation that is made without any consideration in return - neither financial nor tangible.
Lending Based Crowdfunding
This form is a type of personal loan from individuals or SMEs with a fixed interest rate, also known as peer-to-peer lending.
For companies with subscription business models, other alternative forms of financing, such as those offered by re:cap, provide a much faster and less complicated solution. With re:cap, you can convert up to 50% of your ARR into immediately available capital. Sign up with just a few clicks and receive approval within 48 hours.
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No. In case of success - i.e. if your project reaches its target budget - you pay platform and transaction fees between 4 and 12 percent to the crowdfunding platform. The exact amount depends on the platform. If your campaign fails, you pay nothing.
Crowdfunding brings many advantages. The fact that the legal form and creditworthiness of the project do not play a role in crowdfunding certainly plays a major role in its popularity. Thus, especially creative people and artists of all kinds, as well as non-profit initiatives, can collect money for their projects. The positive marketing effects, as well as customer proximity and loyalty, also ensure the good reputation of crowdfunding.
Crowdfunding originates in the artistic sector for financing various creative projects in the fields of music, film, theater, and art. Today, however, it is also used by private individuals, non-profit organizations, and companies of all kinds - whether in the startup phase or as a boost in ongoing operations.
There are four types of crowdfunding, which differ primarily in the consideration:
1) In equity based crowdfunding, investors receive returns on their investments.
2) In reward based crowdfunding, the initiators provide non-cash or intangible compensation for the investment.
3) In donation based crowdfunding, investors donate their contribution.
4) In lending based crowdfunding, the investors grant private loans with a fixed interest rate to the initiators.
Whether you are a startup or a medium-sized company: crowdfunding can theoretically be 'applied for' by anyone. However, success depends on how many investors are convinced by the project. Anyone who wants to try their hand at crowdfunding must first create a campaign on one of the common crowdfunding platforms and advertise it on their own channels.
Crowdfunding offers particularly many advantages for private, non-profit, and creative projects - or as a supplement to public funding. In addition, crowdfunding can be particularly worthwhile for early-stage startups that have largely completed their product development and now need fresh capital for growth. Young companies that want to test their business model or product can also benefit from the communication and participation of a crowdfunding campaign - providing an indicator for other forms of financing.
Crowdfunding is financing based on debt capital. The capital provided comes from a large number of investors, mostly private individuals and companies - the so-called crowd or swarm. Hence the term 'crowd financing'.
Crowdfunding is considered an alternative financing option, which is opposed by several common alternatives (or supplements). Among them are public funding, corporate credits, venture capital, or even founder competitions. Newer forms of financing, such as re:cap's recurring revenue financing, offer another alternative to crowdfunding.