Types of Crowdfunding

A distinction is made between 4 types of crowdfunding.

1. Crowdfunding Donations

Donation Crowdfunding is probably the best-known form of crowdfunding. Usually they raise money for social causes, such as expensive medical procedures or associations. Donations don’t give investors a return, it’s a pure gift. In Europe there are several platforms that offer this service, including Crowdfunding Platform WhyDonate.

Crowdfunding for Charities

Crowdfunding for charities can be a successful way of fundraising. More and more donors prefer to give ad hoc instead of monthly. The urgency of crowdfunding for a good cause is very high and that can lead to large donations and a lot of visibility of the campaign. Social media and crowdfunding go very well together.

Do you want to easily raise money for charity? Start a free fundraiser page on WhyDonate. With a crowdfunding fundraiser on WhyDonate, you receive donations from your network and around it. Your fundraiser will be online in minutes!

View more Crowdfunding Charity tips and examples here.

Personal Crowdfunding

Apart from organisations, individuals can also raise money through crowdfunding. More and more individuals receive loans, donations and corporate financing and mortgages through private crowdfunding. It is often difficult to get a loan from a bank, which is why crowdfunding can be a solution. Even when you are short on cash or need a huge amount for medical treatment abroad, setting up a private donation crowdfunding campaign is easy and free of charge on WhyDonate.

2. Crowdfunding Loan

The fastest-growing form of crowdfunding is the loan form, which is used to finance SMEs. This form represents 89% of all crowdfunding in the Netherlands. In exchange for a loan of money, investors receive a financial reward. Sometimes they also receive an incentive.

3. Crowdfunding Equity

In equity crowdfunding, the company makes investors co-owners of the company. Sometimes literally because it directly issues shares.

If it is difficult to properly value shares, for example, when turnover or profit is still difficult to predict, a company can first issue a convertible and later convert it into shares.

Crowdfunding in shares makes the investors co-owner of the company. It is, therefore, also referred to as crowdfunding in venture capital.

In Europe, equity crowdfunding is less popular than the loan or donation variant, but it has some interesting advantages.

4. Reward-Based Crowdfunding

The main difference between donations and crowdfunding as a reward is that in the latter form, investors receive non-financial rewards from entrepreneurs. This usually applies to projects in creative departments or start-ups. In return, this can be a concert ticket or a copy of a CD. Investors can also receive a copy of the product (yet to be designed) and receive a certain amount of sponsorship.

1. Create a crowdfunding plan
   What do you need to raise money for? Explain this in detail on the crowdfunding platform. Determine your financing need, how much money do you need for your action? Make a realistic estimate as much as possible.
   In the first half of 2021, entrepreneurs raised an average of €260,000 through crowdfunding. You can raise a maximum of 2.5 million euros per crowdfunding campaign via crowdfunding websites. The European Parliament has decided to increase the amount to EUR 5 million. This applies from November 10, 2021.
2. Determining Rewards for Investors
   Think about the rewards you offer to investors. What is realistic? Make interesting suggestions to interested investors. There are several options that can be combined.
   – Donations
   Donors give you money and expect nothing in return. Keep in mind that gift tax can play a role in this. A gift tax applies if a certain amount is exceeded.
   – Shares
   Investors buy shares in your company and receive dividends (earnings-related compensation).
   – Loans
   Investors provide loans. You can determine the interest rate and the period yourself within a certain bandwidth. Startups have a high risk profile, so you automatically have to offer a higher interest rate. Crowdfunding platforms can advise on this.
   – Convertible bonds (equities)
   These are convertible bonds (bonds) that can be converted into shares. It is a loan that you can convert into shares at a certain point in time.
   – Reward or compensation
   You offer an investor something in the form of a product or service. You can think of playful behavior. Note: The value of the consideration is subject to VAT.
3. Choosing a crowdfunding platform
   Choose the crowdfunding platform that best suits your purpose. Pay attention to the following points: The crowdfunding model used, the amount required, the duration of the financing campaign, the duration of the financing and the industry. You can have a free crowdfunding scan performed for this.
4. A good story
   A short and meaningful story is important to attract donations/investment to your cause. Therefore, prepare a good pitch. Ask yourself what potential crowdfunding donors and investors want to know from you. Talk about yourself, bring your passion into your story and show what problems your products, services, ideas or companies solve and who helps you. In this way it is clear what the investor is putting money into. Explain the benefits and risks for investors. Use attractive visuals and a video pitch. Watch videos from various crowdfunding platforms for inspiration and examples.
5. Mobilize your network
   You can warm up and mobilize your existing network before launching a crowdfunding campaign. Let them know when the campaign launches. This allows you to create ambassadors, collect pledges and measure feasibility. For example, hold a launch party to get attention before launching a campaign.
6. Start the campaign
   The campaign starts. Campaign time begins. Use every moment of this period to report on your campaign  online and offline. Make the story personal every time and show your commitment. Use (social) media  to draw attention to your campaign.
7. Stay in touch with donors and investors
   At the end of the campaign, thank the donors and investors and inform them of the outcome. A new phase begins: You can start carrying out the set goals. It is now important to communicate with them about the progress of your activities. Keep your promise: give your investors their compensation. Stay in touch with them, even if your plans are delayed, or about that.