Crowdfunding: A Community Support Model

Jun 22

Crowdfunding: A Community Support Model

Crowdfunding can achieve magnificent feats when implemented correctly for a common cause, but what is it?  In layman’s terms, crowdfunding is a pooling of resources from a large number of supporters (essentially the “crowd”).

This method can be used to support a large variety of causes. Supporting an artist, a charity, or a political campaign are a few among many reasons to implement crowdfunding. Your main goal would be to brew up and maintain a financial initiative from a large group of individual supporters to obtain a main goal. There are four main types of crowdfunding. Here is a quick synopsis of those methods.

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  • Donation-Based Crowdfunding: The donations are typically to support a cause, like race for the cure or jump rope for heart. An internet platform that is used to collect donations to fund a struggling artist would be a valid example of this type of crowdfunding. This is the most well known of the models, and pretty straight forward.
  • Reward-Based Crowdfunding: This is where the backers of the project are enticed with the promise of receiving a reward for their voluntary donation. The “gift” is usually a product of something the donation will be used to produce. It’s really kind of like a pre-order system. A good example of this model is Kickstarter. It helps people to fund new creative projects.
  • Credit-Based Crowdfunding: This type of donation platform is based on credit where the the proprietor lends the funds in exchange for an interest rate. The money is generally considered to be in the form of a loan. A couple examples of this system in play would have to be Lending Club and Prosper.
  • Equity-Based Crowdfunding: This version of crowdfunding the primary donor is really a primary investor. They gain shares of a particular company in return for the money they commit to the project. You give a sizeable donation to a business, and gain ownership of a portion of that particular business. AngelList is a good example of this model put into motion.

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A Brief History Lesson

Now that you have a foundational knowledge of the different branches of crowdfunding, maybe you should know a little bit of functional and background information on the subject.

A large contribution that was brought together by a crowdfunding model is the Statue of Liberty. A gift originally from France, the funding was actually pulled together by a large collection of generous individuals. This method built, assembled, and shipped the United States one of its most iconic symbols ever displayed.

Cruises and tours of Ellis Island still run daily, continuously providing the people of New York with financial benefit. All of this stemmed from an old but functional crowdfunding model.