Crowdfunding is a new concept introduced in the market. Some find it very effective for investing in the business and others are considering it as a risk for their money. It is an interesting concept that helps small companies and startups to have funds and become accessible to everybody.
Crowdfunding is defined as the practice of funding the project or a venture by raising money from a large number of people who contribute a small amount of money through the internet. You can also do peer to peer investing that enables the companies to directly obtain loans from other individuals cutting out any financial institution. These types of fundings will help these companies to set up their business in the market.
Crowdfunding can be mainly of four types:
- Reward-based – In this type of crowdfunding, the investors invest the money in exchange for some kind of reward provided to them. For example – if you are investing in some product, the company may offer you to provide the product free for one year in exchange for the money that you provide them.
- Equity-based – This crowdfunding refers to the investment made by the investment in exchange for some equity of the project. For example- the investor may ask you to hold 10% equity in the profits made by your product. It is the safest and easiest method in case you want to do crowdfunding for business. Choose this option if you want a real investor for your project.
- Debt-based – This is known as peer to peer lending. In this type, the investor invests the money to the platform that manages the funds and then these platforms loan this money to the small businesses and companies.
- Blockchain-based – It is the new type of crowdfunding. You might hear of “Bitcoin”. They use the concept of blockchain crowdfunding that benefits both the investors and the business that need these funds.
The decision over the type of crowdfunding solely depends on the risk appetite. If you want any kind of return then you should go for reward-based crowdfunding.if you are looking for a better rate of interest then debt-based crowdfunding is the option for you. Blockchain crowdfunding is for gamblers. If you want to be the real investor in any project, then you should opt for equity-based crowdfunding.
It is advisable to do some research on your own before selecting the type of crowdfunding. You should know about all the positive points and the risks associated with the crowdfunding you want to do. Analyze every single point related to all the types and then choose the option that includes minimum risk and maximum profit.
Click here to know more about crowdfunding and its benefits and economic risks. Crowdfunding is a great way to invest your money so that you will get the privileges using the money.