Prevalence of Crowdfunding
We have all seen or heard of the websites devoted to crowdfunding. The concept of crowdfunding is still relatively new, but becoming more and more prevalent as a method of raising capital for a multitude of projects. But, do you know what crowdfunding and a crowd really are and how they work? Let’s explore them. Crowdfunding, by definition, is the “activity or process of raising money from a large number of people, typically through a website, as for a project or small business.” This falls under “general solicitation.” In other words, marketing or reaching out to people that you don’t already know. The general public. So, what is a crowd? Simply put, a crowd is not three. It’s not 50. It’s not even 500. It’s more than 5,000! Developing a crowd is work. Hard work.
Types of Crowdfunding
There are four types of funds in crowdfunding. These will give you a better idea on who is using crowdfunding and how they are building their crowd.
Donation – As the name implies, this is a donation, and nothing more. When an individual commits to this type of contribution they receive nothing tangible or returned on their investment. They simply donate to a cause they believe in or want to support. The most common donation-based website is www.gofundme.com. Another common one is www.giveforward.com.
Rewards – This type of capital fundraising promises to deliver a product to a consumer before it hits the shelves. Basically, a person commits an amount to a company and then receives a product at a discount and before it is available to the general public. Examples of this type are www.kickstarter.com and www.indiegogo.com.
Debt – Due to changing lending laws and tightening requirements, individuals and businesses are turning to other avenues for funding their businesses and deals. This is becoming a borrower’s “bank.” Debt-based crowdfunding sites are www.lendinghome.com, www.lendingclub.com and www.prosper.com.
Equity – Equity-based crowdfunding is become more and more popular. A company may receive a first position loan and use the equity in the business or product to attract investors. Or, they may solely rely on investor funds for a project. Either way, these are examples of equity crowdfunding sites, www.realtymogul.com, www.angel.co and www.equitynet.com.
Crowdfunding, the latest buzzword in real estate, is real. This industry is on a tremendous growth curve. This is truly an exciting time for real estate, investments and capital management. QCBN
Bruce Wuollet is the co-founder of Acquisitions Bakerson Real Estate Capital Management. He has been creating and managing equity-based real estate investments for 13 years. His current focus is bringing private offerings to the public through a crowdfunding platform. You can reach out to him to discuss and/or learn about crowdfunding and 506(c) capital raising by emailing [email protected].
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