Contribution vs. Securities-based Crowdfunding


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Fundraising Instruments: Which one is right?

It is important to understand the differences between the various Business Crowdfunding instruments we make available to you, and decide which is best for your company based on your business goals and needs.

The 2  top level categories are Contribution and Securities-based crowdfunding.

Contribution is non-investment funding. This model fits companies who have products or services that supporters and contributors are willing to pre-purchase, contribute to, or support for personal reasons.

Securities-based funding gives ownership, or a promise of future revenue to investors in equity or debt.

If you’re considering Securities-based funding, one of the first top level considerations to ask yourself is, which model fits your business best? Are you in a high risk innovation-oriented company, that has potential for exponential growth if successful? Or, is your business a more traditional service, like a brick and mortar business, that will have a consistent revenue model, but less potential for explosive growth and scaling?

Generally, businesses with exponential growth potential should look to raise Equity-based funding. For example, some technology and innovation companies that could sell in the future for a several times multiple of yearly revenues, can fit the profile of a company that should consider this funding model.

Companies that have a simpler and more predictable revenue stream are more likely to fit the Debt-based funding model. These companies produce consistent, sustained and predictable revenue growth, but typically don’t experience liquidity events like selling the company or going public.


Here are some quick tips to help you think through the best funding model for your business:

Contribution

  • Non-equity funding raised online
  • Contributors receive a non-monetary reward for helping fund and grow your business
  • Companies offer rewards or “offerings” in return for contributions
  • Best-suited for startups and young businesses who need early stage funding, but can be used for any stage of the business life cycle for small funding rounds
  • Available now

Equity

  • Companies offer equity shares in return for capital investment
  • Supporters become shareholders
  • Best-suited for established small and medium busineses who can show progress against major milestones, are in a growth phase, and can demonstrate exponential market potential backed by data
  • Expected to be available to accredited investors in early 2013 through Crowdfunder’s partnership with Gate Global Impact
  • Not yet available

Debt

  • Similar to a loan where supporters are repaid with interest on a set schedule
  • Supporters do not receive ownership shares in the business
  • Best-suited for established businesses with stable revenue and assets
  • Not yet available

Source: Crowdfunder.com

 

 

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About Stephen G. Barr, Group Publisher

Author, Syndicated Columnist, Editor In-Chief and Group Publisher at SGB Media Group, a social media marketing firm specializing in digital media content production, publishing, affiliate marketing, public relations and advertising. Over 25 years experience in retailing, advertising, website & online forum development, niche social networking, affiliate marketing, search optimization, branding and identity, site location, non-profit fund raising. Event planning, promotion, production and MC/Host at public events. Author, Editor & Publisher of 35 syndicated, digital publications utilizing multiple digital distribution channels in conjunction with launching and administrating national advertising campaigns for major Fortune 500 advertisers in partnership with Google, Ning, Facebook, Myspace, Yahoo, DoubleClick, LinkShare, PepperJam and other industry leading third party affiliate networks. Product development team member from conception to launch on many websites, tangible goods and organizational structure for start ups. Specialties: Public relations, retailing, advertising, website & online forum development, niche social networking, blogging, email campaigns, affiliate/performance marketing, search optimization, branding and identity, site location, event production & promotion, non-profit fund raising and tasteful, responsible adult content publishing. An internationally recognized and read social media columnist & pundit on The Examiner, Associate Content, Vator.tv, X-Biz.net and Technorati and his own affiliated sites.
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