Pros & cons of all types of crowdfunding

Proportion
Categories: Crowdfunding

Did you know that crowdfunding, which you often read about on our blog, is called “Rewards-Based crowdfunding”? And that it’s just one of many types of crowdfunding?

You can choose from several types of crowdfunding and some can be more profitable for your project than others.

How to find out which alternative will bring the best results?

It’s enough to start with a basic overview of what types of crowdfunding exist, what you can expect from them, and what types of projects are suitable for each of them.

Rewards-Based Crowdfunding 

When most of the beginning project creators think about crowdfunding they are thinking about its rewards-based alternative.

If you read our blog regularly, you already know that this kind of crowdfunding is based on getting financial support in exchange for some form of reward. Projects get funding and backers rewards. The most popular platforms for Rewards-Based Crowdfunding are Kickstarter and Indiegogo.

Pros:

  • You’re not losing control

Unlike other types of crowdfunding, rewards-based funding doesn’t force you to give out equity. You do not lose control and you get early-adopters and initial awareness. Making a successful campaign is not easy, and any success has to be earned.

  • You get more than just money

Successful creators know that a successful campaign will attract much more than just financial support. Dozens of fans, loyal customers, new relationships with the media, enormous awareness, or even expansion into new markets are the different forms of currency on Kickstarter.

These benefits are common for Rewards-Based Crowdfunding and are a very strong argument for choosing the right type of crowdfunding.

Není odměna jako odměna. Mnoho tvůrců si myslí, že jejich odměny jsou skvělé, ale pravda je taková, že vymyslet lákavé odměny může být výzva.
Many creators think that their rewards are great, but the truth is that creating exciting rewards is a challenge.

Cons:

  • Even success can go wrong

The past has shown us that even excellent teams with successful campaigns can make bad decisions. Most often, success falls on poor assumptions of product development, incorrect calculation of rewards logistics, or assumptions that are not reality-based. Quite simply, a campaign that has met its goal can change into a nightmare. That’s why at Fundchaser we are advising our clients from the very beginning to be conservative, have reserves, and have feasible expectations.

Which types of projects are a fit for Rewards-Based Crowdfunding:

Any project that can create interesting and valuable rewards will find its place in Rewards-Based Crowdfunding. Creating the right rewards is a challenge and not every project can do it, but if you can, you should take advantage of this type of crowdfunding.

Equity Crowdfunding/Crowdinvesting

In the past, if an entrepreneur wanted to get funding, he would have to turn to investors. They provided financial support to entrepreneurs in exchange for a portion of their stake.

In the crowdfunding world, there is an alternative to this scenario called Equity Crowdfunding. Thanks to this model, even the smallest investors can invest a minimum of $500 to support the project and at the same time get a portion of the company’s equity. The most popular platforms for Equity Crowdfunding are AngelList, OurCrowd, Seedrs or their Czech version Fundlift.

Trpělivě si promyslete jestli chcete kus vašeho koláče (projektu) dát investorům. A pokud usoudíte, že je to pro vás nejlepší volba, tak si určitě vyberte podílový crowdfunding.
Take your time to decide if you really want to give a piece of your cake (a piece of your project) to investors. And once you realize it’s the best choice for you, then you should definitely go for Equity Crowdfunding.

Pros:

  • Bigger financial potential

Equity Crowdfunding presents the greatest potential for more financial support. It’s not a rule of thumb but funding from investors is mostly higher than Rewards-Based Crowdfunding.

  • One investor

Imagine a situation in which you would get funded by 100 investors. But that means you have 100 people around you who can tell you how to lead your business. That’s what most projects want to avoid.

If you use Equity Crowdfunding to get financial support, the platform usually consolidates all investors into one entity, meaning you only have one investor to communicate with.

Cons:

  • Smaller marketing potential

Many countries have not yet adjusted their regulations to this crowdfunding concept. That’s why there is only a small community of regular Equity Crowdfunding investors so far. This does not mean that the projects do not have a chance to raise enough money, but a small circle of investors surrounding Equity Crowdfunding means smaller interest of the media and the public.

Which types of projects are a fit for Equity Crowdfunding:

Equity Crowdfunding is especially good for projects that need to get more money and are willing to give up some of the equity.

Donation-Based Crowdfunding

If you are a non-profit, it does not mean that you should forget about crowdfunding. On the contrary, just for similar projects like yours, a separate crowdfunding discipline was created. Donation-Based Crowdfunding is a form of Rewards-Based Crowdfunding… only without the rewards. The community supports your project financially, but does not get any reward or equity. The most popular crowdfunding platforms for non-profit organizations are GoFundMe, YouCaring.com, GiveForward or FirstGiving.

Crowdfunding based on donations is very specific. This is mainly due to the reasons why projects use this kind of crowdfunding. Therefore, it is very questionable whether it is possible to clearly identify the advantages and disadvantages of this type of crowdfunding. On one hand, it is certain that business-oriented projects won’t succeed with Donation-Based Crowdfunding, but for social and environmental ideas it’s the ideal alternative.

Crowdfunding založený na darech je velmi specifický a většinou platí, že byznysově orientované projekty na něm neuspějí. Střízlivě si promyslete, jaké cíle chcete s kampaní dosáhnout a který typ crowdfundingu je pro vás nejvhodnější.
Crowdfunding based on donations is very specific. It’s a territory where business-oriented projects don’t succeed. Patiently consider what goals you want to achieve with your campaign and which type of crowdfunding is best for you.

Select the type of crowdfunding according to your goals

How do you know which type of crowdfunding is for you?

First-hand information is always the best, so we particularly recommend that you interact with successful campaign creators who have used some of the types of crowdfunding.

And before choosing which type suits you best, get to know each of them and make sure to always keep in mind the goals you want to achieve with your campaign.

If you are planning a crowdfunding campaign or you’re already working on it, and you need expert assistance, contact us today and we will help you get the most out of your campaign.

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