As another funding source, crowdfunding comprises four categories: donation-based, debt-based, reward-based, and equity-based.
Heaptalk, Jakarta — The presence of platform-based technology in the form of crowdfunding as another fundraising method has facilitated meeting the demand and supply of capital, eventually increasing financial markets’ efficiency.
According to the Ministry of Finance of the Republic of Indonesia, crowdfunding is a financing scheme called democratic funding, carrying out a small-scale concept from several people, enabling them to pour the fund into a project. Usually, the capital obtained comes from several parties, including friends, family, customers, and investors. These funds will be allocated to enlarge a business.
Crowdfunding which has become an online-based investment trend in websites, will expose multiple products like online shopping websites. However, the products flaunted are not for sale but are for funding. Users can effortlessly deposit funds as in the online store buy and sell process. This fundraising method is also expected to have a positive externality effect of bolstering people’s intention to be entrepreneurs through this investment technique.
Types of Crowdfunding
- Donation-based
Implementing a donation system, this funding type is dedicated to contributing to non-profit projects, including orphanage construction, disaster relief, and other social programs. To complete a submission, submitters can utilize crowdfunding platforms.
Through the website, they can explain to the public related to their business models, benefits offered, products, and further business potential. In addition, they can also set a target amount of funds. By applying a donation system, business practitioners would not be required to return the funds.
- Reward-based
This crowdfunding category is the fundraising type that uses prizes to attract investors or funders to participate. Unlike the donation system, there is a reward that you give to investors with a decent amount. This reward system is suitable for small businesses or startups that have just been established. With prizes, investors will feel part of the initial development of your business. Apart from that, you can also use gifts as merchandise as a business branding effort.
- Debt-based
This crowdfunding type is equivalent to the money lending service. The prospective debitors will propose their proposal, and backers or creditors will deposit the capital that is considered as the loan with interest as the feedback.
This system is equal to peer-to-peer (P2P) lending. However, in this fundraising model, the raised fund is the donation form involving three parties: the business owners, funders, and platform providers. Many startups have implemented debt crowdfunding to obtain high amounts quickly because P2P lending is quicker than applying for a loan in a bank.
- Equity-based
This fundraising category, known as crowd-investing (ECF), is the funding category that provides a share to investors. ECF is the most suitable for startups and medium-sized businesses requiring significant capital. In this type, loan seekers will come to borrowers and borrow money for their business needs. After obtaining profit, the borrower will provide reciprocity through incentives, including interest.
