The four types of crowdfunding - Business Strategy Review

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Gary Dushnitsky, Professor of Strategy and Entrepreneurship, shares the four common types of crowdfunding.

This was first published in Business Strategy Review, Volume 24, Issue 4, 2013. Subscribe today to receive your quarterly copy delivered to your home or work place. http://bit.ly/BSR-subscribe

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The four types of crowdfunding - Business Strategy Review

  1. 1. Gary Dushnitsky, London Business School Term Chair Professor of Strategy and Entrepreneurship on the four common forms of crowdfunding. © Copyright 2014 London Business School
  2. 2. Crowdfunding has witnessed incredible momentum over the last two and a half years. There are four main sub-categories of crowdfunding, which are divided by the nature of the return to the crowd investor. THE FOUR SUB-CATEGORIES OF CROWDFUNDING • Donation-based • Rewards-based • Equity-based • Peer-to-peer lending. BUSINESS STRATEGY REVIEW 1
  3. 3. Donation-based Contributions are given in the form of a donation. Donors are motivated by social or intrinsic aims, and receive mostly intangible benefits in return (ie no money, equity or perks). ■ Platforms of note: Razoo (razoo.com), which offers a dedicated platform for causes; Kiva (kiva.org), which employs a hybrid model of donations based on peer-to-peer lending; and DonorsChoose (donorschoose.org), which focuses on US public schools. ■ Campaign of note: Barack Obama’s 2008 presidential campaign was a landmark crowd-funding example. BUSINESS STRATEGY REVIEW 2
  4. 4. Rewards-based Contributions are given in the form of pre-purchasing a product or service. Backers are motivated by the rewards (perks) and by social aims, and receive the reward or perk as payment. ■ Platforms of note: Kickstarter (kickstarter.com) and Indiegogo (indiegogo. com) are the biggest platforms, with more than $1bn raised by tens of thousands of entrepreneurs. ■ Campaigns of note: Pebble Watch (Kickstarter) and Ubuntu Edge (Indiegogo). BUSINESS STRATEGY REVIEW 3
  5. 5. Equity-based Contributions are given in the form of equity investment. Investors are motivated by a combination of intrinsic, social, and financial motivation, and receive financial return on investment over time, if the business succeeds. ■ Platforms of note include: • Seedrs (seedrs.com), • CrowdCube (crowdcube.com) and • AngelList (angel.co). ■ Campaign of note: CrowdCube’s self-run funding campaign. BUSINESS STRATEGY REVIEW 4
  6. 6. Peer-to-peer lending Contributions are given in the form of a loan. Lenders are motivated by a desire for reward and intrinsic aims, and receive repayment of the loan with interest. Occasionally, if the lender is socially motivated, the loan is repaid without interest. ■ Platforms of note include: • Zopa (zopa. com), • Lending Club (lendingclub.com) and • Prosper (prosper.com). BUSINESS STRATEGY REVIEW 5
  7. 7. This was first published in Business Strategy Review Volume 24 Issue 4 2013 www.london.edu/bsr BUSINESS STRATEGY REVIEW 6

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