The Five Types Of Crowdfunding Models Explained
Types Of Crowdfunding Models Explained
Crowdfunding is an excellent alternative to conventional startups and established businesses when it comes to raising capital. However, when you’re just starting your business venture, it’s elementary to get confused about which Crowdfunding model you should use. Several different models fit different needs, but Crowdfunding does have its disadvantages. With these five types of Crowdfunding Models explained below, you’ll be able to choose the one that works best for your business.
Hybrid Model: This model combines the benefits of Angel Investors and private Funding sources with the advantages of a Crowdfunding campaign. Tapping both of the resources you gain access to can quickly raise a more significant amount of capital. The downside to this model is that you will not be making any equity investment as the suppliers provide this investment. However, the amount raised is higher than what you would receive from an angel investor.
Seed/ Bounty Reward System: As its name suggests, a seed or bounty reward system allows supporters to contribute an amount of money towards a project instead of contributing towards its total budget. This Crowdfunding model provides supporters with the benefit of obtaining early access to the product without risking their own money. By donating money towards a project’s budget, supporters can act as “seal members,” meaning they are entitled to an equal amount of pre-sale marketing but will only receive that money if they purchase the item. Therefore, there is still some risk involved with this Crowdfunding method.
Publicity Based Campaign: A publicity-based campaign provides information to potential customers and media outlets about your products or services. By paying a fee, supporters can obtain more information and see for themselves the progress of your campaign. The prices are generally high enough to cover overheads such as graphic design, web hosting, software, and the costs incurred by running the campaign. However, if your supporters tell others about your campaign, they may end up backing it, or spending money on future products, hence the need to maintain good relationships.
Private Funding: This Crowdfunding model is similar to a grant program, but instead of a specific group applying for the funding, it benefits anyone interested in your project. There is no need to disclose any information about your business to obtain funds; it is entirely based on the generosity of those who wish to help. Crowdfunding platforms such as In develop, Flippa, and Ravelink offer private funding. These Crowdfunding models have been proven to work, but they require honesty and commitment from the companies or individuals who are applying.
Private Equity Model: This type of Crowdfunding Model involves investors providing financing for your project. The most common method of using private equity is to pay for a percentage of your product with a third-party investor. However, there are other methods as well. Before you decide to work with this option, it is crucial to determine whether enough room to market and sell your product successfully.
Seed/ Booster rounds: Seedrounds are an ongoing process that involves multiple investors helping you fund your project. Investors usually participate by lending you money without expecting anything in return. The goal of seed-round is to raise enough money to build your production facility and manufacturing phase. There is also a risk of losing your investment. Seed rounds are very risky because of the high risk of not generating any revenue. However, seed rounds can provide a significant amount of capital to get you started in your new venture.
SaleHoo: The Salehoo online listing offers a wide range of services designed to help sellers efficiently manage their online businesses. SaleHoo has become one of the most popular tools used by many sellers and entrepreneurs to list and sell their products. SaleHoo provides entrepreneurs with a complete listing of manufacturers, wholesale suppliers, and dropshippers who can offer quality products at low prices. SaleHoo also helps sellers register their company, manage its website and monitor its online transactions. This online listing and management service allows sellers to easily search for customers and drive the business more straightforward and faster.
Crowdfunding is a growing trend in the startup sector, and it is not just limited to capital raising. Lending and Equity Crowdfunding Models are also gaining momentum, and companies are using these Crowdfunding Model options to raise investment for their year-round operations, such as product development, expansion, or acquisition. ONPASSIVE has also developed an exciting O-Bless crowdfunding platform to help businesses and others.