Crowdfunding is the practice of raising money from a large group of individuals, typically through an online portal. There are four prevalent models of crowdfunding:
The crowd donates money to a cause, individual, project, or business, without expectation of any financial or non-financial return.
The crowd gives money to an individual, project, or business, in exchange for a non-financial reward. The rewards are generally either items like shirts or stickers, or an early version of a product (essentially, a pre-sale via crowdfunding).
The crowd lends money to an individual or business, with expectations of getting the principal back with interest.
The crowd invests in a business, with hopes of sharing in the business’s success as it grows.
Depending on the type of crowdfunding campaign an entrepreneur chooses, he or she will need to prepare different types of pitches. For lending- and equity-based campaigns, investors will want to see a strong business plan, financial projections, and a growth strategy. For reward-based campaigns, backers will want to see an innovative product or project in a sleek campaign video. For donation-based campaigns, backers will want to see how their donation will benefit the recipient entrepreneur(s)/people. Indeed, while crowdfunding can be effective, it is also highly time-consuming.