By Fernando Berrocal

Crowdfunding platforms are one of the most popular ways for a startup to raise funds nowadays. People choose to donate through an approved fundraising platform to help generate money for a certain initiative or project when they use crowdfunding. It's critical to understand the many options accessible to you if you're considering crowdfunding. Two of the most prevalent funding models are the following: “Rewards-Based Crowdfunding” and “Equity Crowdfunding”.

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Which model should you go with for your Business? Let's take a closer look at the following crowdfunding opportunities.

Crowdfunding with a Reward System: Crowdfunders can provide contributors individualized prizes connected with a certain pledge amount via rewards-based crowdfunding. For example, a $25 commitment may include an e-book or other item that is easy to disseminate to a large audience. Larger commitments, in the hundreds of dollars, may come with more sophisticated rewards and incentives.

Contributors and users both benefit from rewards-based crowdfunding because donors receive a one-of-a-kind gift or experience in exchange for their contribution, while entrepreneurs gain the finances they need to move forward with their business.

• All-or-Nothing Funding: Even if you're unfamiliar with the many types of crowdfunding available, you've probably heard of Kickstarter, which is undoubtedly one of the most popular crowdfunding sites available nowadays. Before launching a Kickstarter campaign, entrepreneurs must first be approved, then specify a goal and a deadline for the campaign's completion. The person can begin collecting donations to finance its business after it has been accepted. Pledges are supposed to be within an acceptable price range, and according to Kickstarter, the most common pledge is 25 dollars.

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Kickstarter uses an all-or-nothing financing strategy, which means you won't get the money until the campaign is over, and only if the campaign fulfills its target. If you do not accomplish the specified target, however, all donors will receive a refund. The all-or-nothing approach comes with a lot of risks and benefits, so if you want additional assurances that the money will go toward your project, you might look at rewards-based crowdfunding with flexible financing possibilities.

• Adaptable funding: The ability to build a campaign in which contributors receive a small incentive for their talent is made feasible by rewards-based crowdfunding with flexible financing possibilities, notably through sites like Indiegogo. This platform may be a better fit for you if you want to choose flexible fundraising, which means you keep the cash raised regardless of whether or not your campaign meets its goal.

While sites like Indiegogo let you pick your financing strategy (all-or-nothing or flexible), keep in mind that once a campaign is live and running, you can't change your mind.

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Equity Crowdfunding:  Donors who donate to a crowdfunding campaign on an equity platform get a stake in the business they're helping to support. Equity crowdfunding platforms are selective about which businesses they accept, so entrepreneurs must understand the role of contributors. Donors who get shares are now shareholders in the business, and as such, the corporation must demonstrate to its new shareholders a consistent return on investment.

Which Type of Crowdfunding is best for your business? Choosing the ideal crowdfunding option for your business entails considering what your business needs, how fast it requires funds and comparing different types of platforms to determine which would best meet these requirements.  Consider chatting with an accountant or Certified Public Accountant (CPA) if you're unsure about which fundraising type to use or whether crowdfunding is right for your business in general. They can answer your questions and tell you about other funding options that might be a good fit for your startup.

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Ready to bring your startup to the next level? Apply to MassLight’s next batch. MassLight supplies capital and a dedicated tech team. We take equity in return. Have questions? Refer to our FAQ page.

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