Comparison of crowdfunding services

Crowdfunding is a process in which individuals or groups pool money and other resources to fund projects initiated by other people or organizations “without standard financial intermediaries.” Crowdfunded projects may include creative works, products, nonprofit organizations, supporting entrepreneurship, businesses, or donations for a specific purpose (e.g., to pay for a medical procedure). Crowdfunding usually takes place via an online portal that handles the financial transactions involved and may also provide services such as media hosting, social networking, and facilitating contact with contributors. It has increased since the passage of the Jumpstart Our Business Startups (JOBS) Act.

Crowdfunding has a wide reach and may be utilized by businesses, nonprofit organizations, an individual, group, or an organization. Crowdfunding is used in a variety of platforms from social media to face-to-face environments. The use of crowdfunding has increased; however, success is not guaranteed.

Funds may be sought out to start a business, to support a cause, or to reach a fundraising goal. Most crowdfunding projects are small and “seek to raise small amounts of capital, often under $1000.” An individual or organization may not qualify for a traditional bank loan, and crowdfunding provides another opportunity to gain financial support from others. The use of crowdfunding has gained an increased presence since the JOBS Act and has a significant social media presence. It is interesting to note that “approximately 25 percent of real-world relationships start online, with people of all ages migrating online to find a partner. Crowdfunding is doing for small businesses and entrepreneurs what dating sites have done for singles.” Those unable to procure funding from traditional methods, may be interested in pursuing crowdfunding as an option; however, the success rate may be a deterrent. E. Mollick examined Kickstarter projects from 2009 through 2012 and found many projects were not successful as only “3% raise 50% of their goal,” and he stated that successful projects succeed “by relatively small margins.”

Crowdfunding is donation-based fundraising for businesses or creative projects, typically via an online funding portal. Some but not all crowdfunding projects offer contributors rewards, which may differ based on the amount of money donated. Rewards can include copies of a creative work, products created with the funding, special or personalized incentives (such as autographed works or promotional merchandise), or public recognition. Crowdfunding can be broken down into one of the following models:

Equity-based crowdfunding: In equity crowdfunding, a crowdfunding approach is used to raise investment capital, and contributors receive equity in the resulting business. It is a joint effort made between individuals to support the causes of other people or organizations in the form of equity. Contributors may act as investors and receive shares directly, or the crowdfunding service may act as a nominated agent. Equity crowdfunding helps “the 90 percent of businesses that were left out in the cold” by traditional funding methods, which is why it has become such a viable option for business startups.

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Wikipedia