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Crowdfunding is a very promising opportunity for both investors and a startup businesses. Millions of dollars are raised for companies through a variety of crowdfunding platforms, but which one is the most suitable for your business? Before launching a new crowdfunding project, an entrepreneur should ask the question: "Where does my project fit in?" Determining the purpose of your startup is an essential step in discovering which crowdfunding platform to choose.

For example, if your business specializes in art, you may want to consider a crowdfunding site that is known for its success in the arts industry. Every year, more and more projects are operating successfully due to funding from a variety of crowdfunding websites and platforms. But because every crowdfunding site is different, entrepreneurs should consider the pros and cons of each of them. 

(photo credit: Kristian Berge)

Several types of crowdfunding websites are available for Investors and Startups:

Rewards-Based Crowdfunding Websites.

This kind of crowdfunding has become widespread among startups. Websites like WeFunder or SeedInvest allow both not-for-profit businesses and private firms to create projects to raise a certain amount of money. In return for donations, a business or non-profit organization typically rewards people with some kind of incentive for participating.

One such rewards-based crowdfunding site, Kickstarter, has become the largest crowdfunding platform featuring rewards-based deals daily. Marketing their success, Kickstarter shares daily-updated statistics, which reveal more than $1 billion pledged to nearly 66,000 funded projects, with 6.6 million backers. Of those backers, nearly 2 million have supported 2 or more projects.

Equity-Based Crowdfunding Websites.

Currently, equity-based crowdfunding consists of three main types.

Equity I

This kind of equity-based crowdfunding allows any accredited investor to browse private investment deals on a password-protected crowdfunding website. Most issuers using Equity I depend on Rule 506 of Regulation D, which allows an unlimited amount of capital to be raised from any number of accredited investors. This type of crowdfunding typically suits entrepreneurs who want their fundraising campaigns to remain private. (par.9)

Equity II 

With the recent implementation of Title II of the JOBS Act, entrepreneurs are permitted to freely advertise their fundraising needs. Entrepreneurs who engage in Equity II crowdfunding are allowed to seek investments from an unlimited number of accredited investors, from whom they can raise an unlimited amount of capital. This can be accomplished through equity-based crowdfunding portals that simplify online advertising efforts. (par.10)

Equity III

This form of equity crowdfunding is expected to become available later this year. Equity III funding will give crowdfunding platforms the ability to provide and sell securities online, while entrepreneurs will be able to reach out to millions of American people. 

 


 

Fund Wisdom helps investors and entrepreneurs connect through our aggregated system. Entrepreneurs and investors are able to see all platform costs and fees. Additionally, the information we offer helps you choose the right crowdfunding method for you, whether you are an entrepreneur or an investor. 

 


 

Sources used:

http://www.crowdclan.com/choosing-a-crowdfunding-platform/

http://crowdfunding.about.com/od/Crowdfunding-definitions/fl/What-is-rewards-based-crowdfunding.htm

http://www.forbes.com/sites/ericwagner/2014/03/18/equity-crowdfunding-101-is-it-right-for-your-startup/