Choosing the Right Crowdfunding Product

Interested in raising capital through crowdfunding? We’re not surprised. After all, crowdfunding comes with some pretty sweet advantages. The crowdfunding process is cheap, quick, easy – often entirely online. Because crowdfunding requires no collateral, it is a great alternative to traditional funding such as secured loans.

As we discussed in our last article, there are three major forms of crowdfunding: rewards-based crowdfunding, equity crowdfunding, and peer-to-peer lending. To learn more about them and compare the different forms, click here.

Each form serves a different purpose and targets a different demographic, so it is crucial that you pick the right crowdfunding product. Which crowdfunding product is your match? Below, we have provided a handy list for you to use. Read on!

Rewards-Based Crowdfunding

  • Rewards-based crowdfunding is for you if you are trying to pitch a project. It is meant to raise capital for products or services. Its purpose is not to fund your overall business.

  • Rewards-based crowdfunding is ideal for those in the creative or artistic field, or those developing new products and technology to get market validation and pre-orders before starting production.

  • Most rewards-based crowdfunding campaigns expect to raise around $10,000 – $100,000 according to this article.

  • This is a crowdfunding form that requires effort on your part. You need to create a business plan for your brand and your project, you need to do research, think about legal and tax issues in advance, plan the rewards you will offer your supporters, and craft a compelling story or video to market your project and entice new backers. For more details, check out this Forbes article.

  • Costs include: reward and shipping costs, income taxes, and platform fees.

  • Key platforms include Kickstarter and Indiegogo. Coincidentally, Kickstarter has opened new branches in Asia, including Singapore.

Equity Crowdfunding

  • Equity crowdfunding’s primary purpose is to fund startups with strong growth potential.

  • Because equity crowdfunding is essentially a barter of company shares for funds, ask yourself: are you willing to part ways with your company shares? Are you someone who likes to be in control of your company? If you are indeed willing to let go of company stocks and are looking to raise a large amount of funds, then equity crowdfunding is for you.

  • Equity crowdfunding campaigns expect to raise somewhere between $250,000- $3,000,000.

  • Like rewards-based crowdfunding, equity crowdfunding requires effort on your part. Your startup may be very promising, but you still need to pitch its worth to potential investors on your chosen platform.

  • Costs include platform fees and of course, partial ownership of your business.

  • Key platforms include: AngelList and CircleUp.

Peer-to-Peer Lending or Debt Crowdfunding

  • Peer-to-peer lending provides loans with competitive rates and no collateral. Depending on your chosen platform, you can crowdfund personal loans or business loans.

  • However, peer-to-peer loans are especially useful for SMEs and the underbanked segment.

  • Ideal for small businesses searching for short-term credit to strengthen cash flow, to expand their companies, to finance a newly secured project, or just for operating expense.

  • Here’s an example: businesses with income tied in accounts receivable are a great target segment for peer-to-peer lending as they can have quick loans through invoice financing to start new projects while they wait to get paid.

  • A good option for younger, smaller, and revenue-generating companies, but with no suitable assets for secured loans.

  • Peer-to-peer lending campaigns expect to raise around $20,000-$500,000.

  • Requires less effort on your part compared to rewards-based crowdfunding and equity crowdfunding. Your chosen platform will do credit assessment to see if you are suitable for a loan and take care of the rest. You don’t need to market your funding needs.

  • Costs include platform fees and loan interest.

If peer-to-peer lending sounds like the crowdfunding product for you, you can learn more here and apply for a peer-to-peer loan at Funding Societies here.