Crowdfunding: types and models for online fundraising.

When we talk about crowdfunding, we are talking about a method of online fundraising that is based, above all, on the participation of private citizens, the crowd, who decide to make a funding decision. This usually takes place via a web platform where those who wish to raise money to finance a company, or organisation or a specific public or private initiative, are put in contact with a large number of people who are potential investors because they have expressed the possibility and willingness to invest a certain type of share, even a very small one.

Crowdfunding: the 4 types and the pre-purchase.

The four classic types of crowdfunding that can be found on the market today are based on investments (Equity and Lending) or donations (Donation and Reward). Here are their main characteristics:

Equity –  In order to finance itself, a company decides to raise funds by giving shares to a company in return. The investor gets these shares, which he can then sell at a later date at a hopefully higher value than he bought them for, thus making a profit. This is not always the case. It happens, in fact, quite rarely, so it is considered a risky investment.  but There is, however,  a special regulation issued by Consob to protect investors and equity crowdfunding portals are supervised by the same Consob.

Lending – In order to finance itself, the company asks the public for a loan and the amount is then divided among several lenders so that the minimum subscription amount is minimal. The company will return the principal,plus a share of interest, to the investor.

Donation – Often used by those who want to fund a charitable initiative and therefore expect to find lenders who will donate funds in exchange for nothing.

Reward – If the project to be funded consists of a work of art or a product, the donor may be repaid with a reward (the work or the product itself) that is  proportional to the amount donated.

Crossing the Reward and Equity, a model was born that can be defined as hybrid and takes the name of pre-purchase. In this case, a reward campaign is carried out and those who take part in it will be able to enjoy, in the future, an option based on the possible issue of shares (equity) by the company.

Crowdfunding: the three main models.

Given the typologies, we can go into how crowdfunding works and identify different mechanisms we can frame in three main models: microlending, pre-selling and royalty. With microlending it becomes possible to offer credit to those who could barely have access to traditional banking services due to a low level of credit. With pre-selling, on the other hand, the pre-sale of a good or service takes place and is very reminiscent of the reward logic we saw earlier. In royalty what happens is that the person launching a campaign offers investors shares of what they imagine they will earn by selling the individual product or service they are asking to be funded.

Civic and corporate crowdfunding: who is involved in the fundraising activity.

With the spread of crowdfunding, many different models and types have emerged that are difficult to catalogue. There are, however, some characteristics to highlight that do not concern the functioning or reward mechanism but rather the type of actors involved. This is the case when talking about public and private campaigns.  In civic crowdfunding, the objective is to get works of various kinds or projects that are usually of public utility for the citizens themselves financed. In corporate crowdfunding, on the other hand, we connect with the concept of Corporate Social Responsibility (CSR) by directly involving customers in the design phase of products or services in order to help them when they reach that point which can be critical for some. To the civic and the corporate we must add this third option which is the “do-it-yourself” that occurs when the campaign is carried out on the site of the organisation that launches it and does not rely on any external platform.