Crowdfunding eCommerce

Crowdfunding eCommerce is an online way for businesses to promise certain benefits to promote donations for startup companies.

What Is Crowdfunding?

Crowdfunding is how many entrepreneurs initially fund their business with multiple small online donations or investments. Business owners will set up tiered rewards for people who donate more money. In some cases, the “rewards” are repayment.

The 4 types of Crowdfunding

1. Debt Crowdfunding – multiple investors provide a loan amount to the business which is required to be repaid with interest.
2. Equity Crowdfunding – the small business sells shares of their company to investors in exchange for working capital.
3. Reward Crowdfunding – non-monetary rewards are given to the investors in exchange for their investment.
4. Donation Crowdfunding – multiple investors make donations – or monetary gifts – that do not require repayment or reward.

Crowdfunding advantages

The advantage to crowdfunding is that businesses can potentially make more money from multiple, smaller contributions than they would have from singular angel investors or venture capitalists.

Crowdfunding drawbacks

Crowdfunding platforms may require you to set a minimum goal in order to secure the money. If you do not reach your set goal the money reverts back to the donors. In this all-or-nothing circumstance, small businesses may be faced with spending extra time and resources to recruit donations that they never see. Additionally, crowdfunding is only tax deductible for charitable organizations, so many people are not as willing to part with their money without a promise of some kind of return or reward. Small, for-profit businesses may also need to seek alternative financing options even if they meet their goal due to crowdfunding platform fees which will take a percentage of what is accrued.