What is equity crowdfunding and how it’s different?

What is equity crowdfunding and how it’s different?

Equity crowdfunding is becoming a trendy option for companies searching for funding with the additional advantage of not needing to repay a business loan. Specific founders, as well as retail investors, supply startup capital and earn a share of equity in exchange.

When you're searching for equity crowdfunding to start or expand your company, it can be hard to know what the best option is.

Instead of borrowing startup capital from financial companies with equity crowdfunding, you will offer buyers a slice of your business in return for their funding. Companies of all sorts that are hesitant to rack up their debts to launch or expand their businesses — as well as others that do not have enough credit or enough income to apply for more conventional loans — find that equity crowdfunding is also a perfect way to secure funding.

How does it differ from other types of crowdfunding

You might ask how the equity crowdfunding varies from the crowdfunding projects you've seen on GoFundMe or Kickstarter. In reality, there are four forms of crowdfunding sites:

Crowdfunding dependent on incentives

Through reward-based crowdfunding, you don't have to pay back the funds collected, however you may have to send supporters any motivation or thank-you incentives including early access to the game, a company-branded t-shirt, or even a travel to visit you and the squad. The motivation should be commensurate with the amount of contribution.

Crowd financing of debt

This one's sort of like a business loan except that you get the amount you're going to have to pay back. But, rather than investing from a conventional lender, several private investors will add to the overall sum you're attempting to collect.

Crowdfunding for Donor

For donor crowdfunding, you don't have to give the money back at all. Donation thresholds may be set with related incentives or prizes. But why do crowdfunding equity? It may be that one of these other types of crowdfunding is better suited, but bringing investors with it may have some great benefits that we'll soon be getting into.