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What types of crowdfunding are there?

By ATB Financial 3 December 2018 2 min read

It seems like just about everyone has done some sort of crowdfunding, whether to pay off medical bills or invent the next best pair of workout leggings. But if you’re looking to get your business idea off the ground, what type should you choose?

No sweat—we’re here to help.

Here are the four types of crowdfunding.


1. Donation-based

Donors give small amounts of money—usually somewhere between $1-$1,000—without receiving any kind of reward (besides warm fuzzy feelings). GoFundMe is the most popular platform.

Is it for me?

It’s typically used to raise money for a non-profit or cause, so if you’re trying to start up your business, we recommend you pass on this option.


2. Equity

Investors give larger amounts of money—at least $1,000 and usually a lot more. They invest in a company in exchange for a small piece of equity.

Is it for me?

It’s typically used to raise money to fund the launch or growth of a company, not get a creative project started. FrontFundr is a Canadian platform you can explore.

While it’s a great way of raising funds without having to go into debt, you’ll have to give up some of your profit to your investors. And if your company is successful (we’re rooting for you!) and you’re looking to buy back some of your stock, it might be pricey. Keep in mind that before you go into equity crowdfunding, there’s quite a lot of compliance and costly lawyer fees that you’ll need to get through.


3. Debt

Lenders loan money with the expectation to make back their principal plus interest.

Is it for me?

If you’re looking for a larger amount of funds, this is a great option. You’ll have a larger group of people “invested” in your company's success, so by default you’ll get a group of brand ambassadors. Also, it’s not credit score-related, which is a plus—if your crowd believes in you, they’ll lend you the money. Just be aware that you’ll be getting a loan with higher interest rates and a shorter amortization period.


4. Rewards-based

By far the most popular type of crowdfunding. Backers give small amounts of money towards a business idea in exchange for a gift.

Is it for me?

Along with getting the funds you need to start or grow your small business you’ll get validation of your business idea and gain exposure, creating a loyal following. By providing your backers a reward, you’re pre-selling your product so you’re sure of a sale. This option works well for budding businesses that can offer a tangible reward to their backers. There are plenty of websites offering rewards-based crowdfunding, like Kickstarter and Indiegogo.

We often see businesses use rewards-based crowdfunding to start their business and validate their initial business model. After a successful start, some entrepreneurs decide to follow up with a debt or equity crowdfunding campaigns. Others are rockstars with rewards-crowdfunding and have a huge community build, so they can become very successful with another rewards-based campaign.

If you want to learn more about crowdfunding, check out our Crowdfunding Guide.

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