Crowdfunding, or crowdinvesting, is an effective alternative method for connecting investors with opportunities to invest in specific products, campaigns, and even entire businesses. By creating your own crowdfunding platform, you can: disrupt and reshape your industry, provide a highly valuable service, and help turn business ideas, dream projects, and new products into reality.
However, before you can start your own crowdfunding platform, you need to decide which type of crowdfunding is appropriate for your industry. Your decision will depend upon the business models and personal preferences of the industry you serve, as well as the capabilities of your investment crowdfunding software.
There are five popular types of crowdfunding to choose from. Of these, only three - equity crowdfunding, debt crowdfunding, and industry specific - are effective for businesses looking for serious investors. In some industries it may be appropriate to offer more than one of these:
1: Equity Crowdfunding
Offering equity crowdfunding on your platform is ideal if you want to fund the launch or growth of a range of companies. Investors select an offer, buy a small equity stake in the company and become shareholders, normally retaining their shares until a company goes public. Private equity crowdfunding is an ideal way for companies to sell shares to a wide range of smaller investors, rather than just relying on angel investors and venture capital.
Businesses benefit because they can typically raise more capital using this method than other crowdfunding strategies, and investors benefit because they get an early opportunity to invest in high-growth businesses.
How Can Katipult Help With Equity Crowdfunding?
Katipult provides a wide range of features that enable you to build a highly-effective equity crowdfunding platform:
- Advisor tool enables you to manage multiple investors
- Streamlined subscription process with document generation
- Digital signatures ensure you’re never left waiting for paperwork
- Integrated payment processor for crowdfunding with e-wallet functionality
- Investor servicing and reporting tools enable you to manage thousands of investors
- Platform notifications, updates, & smart messages keep your investors informed
- Export information to generate documents and upload to investors
Equity Crowdfunding Case Study: WeAreStarting
WeAreStarting brings innovative Italian companies to the attention of professional and non-professional investors, enabling vital investment in a country where professional investment structures are almost absent.
In its first two years of operation, WeAreStarting launched 11 fundraising campaigns for innovative start-ups and SMEs and is going from strength to strength.
“Thanks to Katipult, we are now one of the main equity crowdfunding platforms in Italy. Katipult’s state-of-the-art software allowed us to grow significantly in terms of deal flow and investors.”
2: Debt Crowdfunding
Supporting debt crowdfunding on your investment management platform is ideal for industries where the businesses either won’t or can’t offer equity. Debt crowdfunding (or P2P lending) enables businesses to sell debt to investors, with the promise of paying them both the principal plus interest in return for the loan. Doing this in the crowd means businesses can borrow small amounts from many different people, instead of just one person or institution. This can both lower the total cost of finance and be considerably easier than the complex application process that institutions such as banks demand.
How Can Katipult Help With Debt Crowdfunding?
Katipult provides the unique features necessary to manage multiple large debt crowdfunding campaigns:
- Easily manage borrower/issuer collections and accounts
- Automated notifications for late payments and fees
- Intuitive dashboards show earnings, fees, net profit, defaults, bad debts, and more
- Loan servicing and reporting tools
- Origination tools
- Repayments module with automated distributions
- Account balances, distribution history, transactions report
Debt Crowdfunding Case Study: Rodeo Capital
Rodeo Capital is one of the leading private money lenders operating in America’s commercial real estate industry and specializes in helping businesses and investors who do not fit within the traditional real estate lending system.
By embracing property crowdfunding, Rodeo Capital has been able to significantly expand their investor pool and help a wide range of investors to maximize their returns.
“Katipult’s team showed strong expertise and combined with the competitive pricing; we were certain that we made the right choice.”
3: Industry-Specific Crowdfunding (e.g., Real Estate Crowdfunding)
If you are serving a unique industry, you may need a unique, industry-specific solution for your platform.
A key example is real estate crowdfunding. In one use case, an SPC (special purpose vehicle) investment company is created to hold the real estate asset (or assets), and then investors buy shares in that company. The shareholders receive a yield and can benefit from any capital gains. In another use case, bridging loans are funded through a debt crowdfunding process. You can read more about Real Estate Crowdfunding and see the platform examples at CreditDonkey's blog.
How Can Katipult Help With Industry Crowdfunding?
Katipult provides the unique controls and features necessary to manage large crowdfunding projects for real estate and other similar industries:
- Fundraising automation
- Show investor updates on real estate developments through pictures and videos
- Broadcast professional looking deals with your own digital platform
- Onboard 3rd party developers and real estate companies with your crowdfunding platform
- Dozens of high-profile Commercial Real Estate firms use Katipult software
- Reduce back-office admin while providing your stakeholders a delightful experience
Industry-Specific Crowdfunding Case Study: R2
R2 is Canada’s first online marketplace that connects property owners and developers with high net-worth property investors. Katipult’s real estate investment management software enables R2 to manage a wide range of complex deals quickly and efficiently.
“With Katipult as our partner we can offer real estate investments that meet our strict underwriting criteria, all under the regulatory framework of the various securities commissions across Canada.”
What About The Other Two Types of Crowdfunding?
So that’s the first three types of crowdfunding - but what about the other two? Rewards-based and donations-based crowdfunding are the models that originally made the concept of investing viable. When they were first conceived, they were groundbreaking, but have now been superseded by the other three types of crowdinvesting (for large businesses, at least).
For example, the Pebble watch famously became an overnight success when it raised $600,000 overnight and more than $7 million in total by offering backers a Pebble watch in return for a $99 pledge.
The campaign was incredibly successful, and left many wondering how they managed to raise so much money without giving away any equity. The real question is, how much more successful could they have been if they had used an equity crowdfunding campaign instead?
Let’s take a quick look at the other two types of crowdfunding:
4: Rewards-Based Crowdfunding
Rewards-based crowdfunding enables backers to contribute financially in exchange for pre-determined rewards. The main reward is typically the product being produced, with some campaigns offering several tiers (with the reward increasing as you contribute more). Because businesses aren’t selling an investment, but rather a product and brand, rewards-based crowdfunding relies heavily on a strong marketing campaign to be successful.
These campaigns are favoured by small start-ups with an idea for a physical product, by getting the backing first they can ensure they have the funds to start large-scale production.
5: Donations-Based Crowdfunding
Donations-based crowdfunding is typically used by non-profits or individuals with a very personal cause, such as raising money for medical bills. Donors receive little or nothing in return for their money, apart from the gratitude of the recipient.