How Does Crowdfunding Work?

Fundraisers are usually charged a fee by Crowdfunding platforms if the fundraising campaign has been successful. In return, Crowdfunding platforms are expected to provide a secure and easy to use service.
Many platforms operate an all-or-nothing funding model. This means that if you reach your target you get the money and if you don’t, everybody gets their money back

Main Types of Crowdfunding

The four most common types of Crowdfunding used by profit-making SMEs and startups

1. Peer-to-peer Lending

Peer-to-peer lending refers to the practice of lending money directly to individuals or businesses without an official financial institution participating as an intermediary in the deal.

Crowdfunding platforms that match lenders and borrowers offer identity verification, loan approval, loan servicing, and legal and compliance services.

How Peer-to-Peer Lending Works

Internet Payment + Principle

Loan

Borrower

Fees

P2P Platform

Fees

Lender

2. Equity Crowdfunding

Sale of a stake in a business to a number of investors in return for investment.

The idea is similar to how common stock is bought or sold on a stock exchange, or to a venture capital.

How does it work?

Companies submit crowdfunding campaigns on recognised ECF platforms like Ethis

ECF platforms review, approve and run campaigns

Investors fund the campaigns by purchasing the companies' shares

Companies get the funds, and investors own a proportion of the companies

3. Rewards-based Crowdfunding

Individuals donate to a project or business with expectations of receiving in return a non-financial reward, such as goods or services, at a later stage in exchange of their contribution.

4. Donation-based Crowdfunding

Individuals donate small amounts to meet the larger funding aim of a specific charitable project while receiving no financial or material return.