We use cookies to improve your experience on this site. By viewing our pages, you give us consent to use cookies. Find out more.

Don’t invest unless you’re prepared to lose all the money you invest. NextFin promotes high - risk investments and you are unlikely to be protected if something goes wrong.
Take 2 minutes to learn more.

Alternative Finance: The Four Types Of Crowdfunding

Posted 11 months ago

Alternative Finance: The Four Types Of Crowdfunding
Share this article:

Alternative investment is generally considered an investment that is not from a bank or mainstream regulated investment provider.

Alternative financial investments can be very lucrative, however are considered high risk as your money isn’t protected under the FSCS. The provider will commonly use other types of security to provide comfort for the investor and each organisation has a different means to do that, from asset-backed property investments to insurance policies.

Industries and investment products under the alternative umbrella can be regulated or unregulated. Alternative investments have become extremely popular over the last number of years and are seen by seasoned investors as a essential diversification to their portfolio.

As there are risks to consider, every alternative investment should be looked at independently, along with its annual net return verses the security given by the provider. Like with all investments, avoiding scams and get-rich-quick products means finding genuine investment products that have a better chance of prospering.

Alternative investments in 2023

 Alternative investments have included property, commodities, derivatives, hedge funds, with the newer trends being P2P (Peer-to-peer) Lending aka Debt Crowdfunding and Equity Crowdfunding. Even owning a business is considered an alternative investment in 2023.

 Professional alternative investment providers, regulated or unregulated, follow stringent compliance procedures. If for example the alternative opportunity is a Loan Note investment, the investor should be pre-qualified to meet the criteria, namely self-certified as a Sophisticated investor or a HNWI. If the investor is not experienced enough to understand the investment and all its associated risks, then the product is not suitable for them. These fundamental compliance rules are in place to protect the investor.

The four types of crowdfunding

 There are four main types of successful crowdfunding. They all share the same principles.

They provide a great solution for charities, businesses or people looking to raise capital for a cause, company or project, and in turn provide varying benefits for the investor or pledgee, depending on the type:

Rewards-based crowdfunding: backers give money to a project in exchange for a reward, e.g. a product or a service.

Debt-based crowdfunding: investors loan money to a company with the expectation of their initial capital paid back plus annual interest.

Donation-based crowdfunding: donors give money altruistically in exchange for gratitude and supporting a cause, charity or business they believe in.

Equity-based crowdfunding: investors invest money in a company in exchange for shares in that company.

Rewards-based crowdfunding

Reward crowdfunding starts with an idea that needs funding. These ideas may come from artists, entrepreneurs, founders, inventors, or film directors.

Essentially, a ‘crowd’ of people are being welcomed to pledge money against an ‘idea’, namely a product or project, so it can be made, produced, or launched. Often the pledgee will see this as a way of buying a product at a cheaper price, before a full market launch, and the project owner (i.e., inventor) will see this as their first market test of their product.

The project categories are rather broad and commonly include arts, design & tech, film, food, games, music and publishing. Naturally, pledgees tend to back items of interest to them, so backing can be as varied as helping make a new TV series to the manufacture of a new chocolate bar.

Via a crowd-funding platform, a project is listed, and a goal amount is set, by the project owner, to bring their project to fruition. Supporters can then pledge the monetary amount they wish and in due course hope to receive the ‘reward’ stipulated. This reward could be the ‘product’ itself, a T-shirt, a new drone, a watch, an album, a DVD of a film, or even the chocolate bar.

Globally, Kickstarter and Indiegogo (some country limitations apply) are the two biggest platforms for rewards-based crowdfunding. And in the UK, Crowdfunder is the largest. Internationally, there are many platforms to choose from and reward crowdfunding has launched thousands of projects, products, and events. Two success stories among many have been the Pebble smartwatch which raised $20 million and the Con Man comedy TV series which raised $2.4 million.

Debt-based crowdfunding

Debt-based crowdfunding is also known as Peer-to-Peer Crowdfunding, P2P Lending and Debt Lending. Debt crowdfunding can be an attractive option for investors seeking interest on their investment.

For a company that needs to raise capital for a specific project, debt financing is a great option. It is essentially borrowing smaller amounts from multiple people to achieve the target raise it needs. The biggest business lender in the UK market is Funding Circle, but there are many others, with some specialising in certain markets, from property, land, cars and boats to business and personal loans.

Unlike other forms of crowdfunding, it is not an exchange for a reward or equity, but a loan.

A company will invite pre-qualified investors to lend money for a project or projects in exchange for a debt instrument that pays fixed or variable rates of interest per annum. Interest will either be rolled up and paid at the end of the loan term or paid monthly, quarterly, bi-annually or annually depending on the structure.

Debt Crowdfunding is very popular in the property industry, for example a new development, a house renovation or buying land. The security is easy and transparent as can be a charge over the assets of the company that is issuing the debt instrument. These types of investment opportunities are generally available prior to development works taking place.

A benefit with Debt Lending is some investment providers allows the investor to take advantage of their ISA allowance via an IFISA (Innovative Finance ISA) which can be significantly tax advantageous.

Donation-based crowdfunding

Donation crowdfunding is simply making a donation to a charity, an individual or company for nothing in return. Donation-crowdfunding covers a wide range, from a party, supporting someone’s exams, sponsored runs to a family disaster, a war or a global crisis.

Donation crowdfunding is completely altruistic, your only reward is the satisfaction of helping someone, something, or a cause that you believe in.

It is one of the biggest crowdfunding revenue generators and shows that people who invest in a business through donation-based crowdfunding are not always just looking for a return on investment.

A big motivator for a lot of people is simply helping a business succeed and being a part of something special.

GoFundMe and Just Giving are two of the most popular donation-based crowdfunding platforms. Some reward-based platforms and equity-based platforms allow companies or individuals to add donation-based crowdfunding to coincide with their other campaign.

Equity-based crowdfunding

Equity crowdfunding is when a ‘crowd’ is invited to invest in an unlisted, private business (a company that is not listed on a stock market) in exchange for shares in that company.

The investor, now a shareholder, has partial ownership of that company and will profit if the company does well or is sold. Crowd investors tend to invest smaller amounts of money, the average being around £1,000. Lead investors may invest millions along with the crowd, depending on the business. They don’t receive any reward other than a stake in the company.

In a simple pre-money example, if the company was valued at £100,000 and the investor purchased 10 shares at £1,000 each, they would own 10% of the company.

Equity crowdfunding is typically used by early-stage businesses to fund their launch or to grow their company.

Many platforms are trying to differentiate themselves from their competitors, therefore there are four main types of equity investment-based crowdfunding.

  • Angel-led
  • Nominee-led
  • Direct investment-based
  • Company-based (White-label software)

All four types of crowdfunding really benefit all parties involved - even if that benefit isn’t tangible. It’s community building and allows people to be part of someone’s vision, dream and success, regardless of if the pledgee is seeking something in return. It’s allowing them to be part of something real, that they believe in.

Remember, the above is not advice, just a guide and a few tips on what to look for. It’s always good to get professional advice and carry out thorough due diligence as your capital is at risk before investing. 

Author: Nikki Dale

Disclaimer: To the best of our knowledge, the information we have provided is correct at the time of publishing. We recommend that you seek professional advice on any topic discussed. NextFin is not liable for any damages arising from the use of or inability to use this site or any material contained in it, or from any action taken as a result of using the site.

Tagged: investment guide alternative finance debt equity crowdfunding



Be a contributor to our blog click here to contact us
Click here to sign up to our newsletter

25 comments

Log in to comment

GustavoGriva GustavoGrivaVN

9 months

selling animal porn leoinel123@proton.me selling animal porn leoinel123@proton.me selling animal porn leoinel123@proton.me selling animal porn leoinel123@proton.me
selling animal porn leoinel123@proton.me selling animal porn leoinel123@proton.me selling animal porn leoinel123@proton.me selling animal porn leoinel123@proton.me
selling animal porn leoinel123@proton.me selling animal porn leoinel123@proton.me selling animal porn leoinel123@proton.me selling animal porn leoinel123@proton.me
selling animal porn leoinel123@proton.me selling animal porn leoinel123@proton.me selling animal porn leoinel123@proton.me selling animal porn leoinel123@proton.me
selling animal porn leoinel123@proton.me selling animal porn leoinel123@proton.me selling animal porn leoinel123@proton.me selling animal porn leoinel123@proton.me
selling animal porn leoinel123@proton.me selling animal porn leoinel123@proton.me selling animal porn leoinel123@proton.me selling animal porn leoinel123@proton.me

Alfredpeexy AlfredpeexyKE

7 months

Я был приятно удивлен качеством профессионализма и сервиса компании "Премиум Маркет Сургут". Они эффективно и аккуратно решают все вопросы, связанные с оптовыми поставками и онлайн-торговлей.
https://premiummarket86.blogspot.com/2023/04/blog-post.html
https://ilmelnikof.wordpress.com/
https://www.tumblr.com/premiummarket86
https://ilmelnikof.wixsite.com/premiummarket86
https://ext-6305516.livejournal.com/329.html
https://medium.com/@ilmelnikof/%D1%83%D1%81%D0%BF%D0%B5%D1%85-%D0%B2-%D0%BA%D0%BE%D0%BC%D0%BF%D0%B0%D0%BD%D0%B8%D0%B8-%D0%BF%D1%80%D0%B5%D0%BC%D0%B8%D1%83%D0%BC-%D0%BC%D0%B0%D1%80%D0%BA%D0%B5%D1%82-%D1%81%D1%83%D1%80%D0%B3%D1%83%D1%82-%D0%BE%D1%82%D0%B7%D1%8B%D0%B2%D1%8B-%D1%81%D0%BE%D1%82%D1%80%D1%83%D0%B4%D0%BD%D0%B8%D0%BA%D0%BE%D0%B2-a45377c94acd
https://kumu.io/ilmelnikof/%D0%BF%D1%80%D0%B5%D0%BC%D0%B8%D1%83%D0%BC-%D0%BC%D0%B0%D1%80%D0%BA%D0%B5%D1%82-%D1%81%D1%83%D1%80%D0%B3%D1%83%D1%82-%D0%BE%D1%82%D0%B7%D1%8B%D0%B2%D1%8B-%D1%81%D0%BE%D1%82%D1%80%D1%83%D0%B4%D0%BD%D0%B8%D0%BA%D0%BE%D0%B2
https://wistful-swamp-061.notion.site/8f62cd9d382f4f97a71bc9c10db48558
https://www.okpal.com/chitaju-otzyvy-o-premium-market-surgut/
https://dstxuok98.ukit.me/

PanchenkoLinaGirl Panchenko Lina

7 months

Hi guys! I am a 19 year old beautiful girl from Ukraine, looking for new friends. More: https://telegra.ph/Looking-for-new-friends-05-13

Brandonidord BrandonidordZJ

5 months

You recieve money transfer of 89.44$! Get money -->

You recieve money transfer of 89.44$! Get money ->-

liеedouck liеedouckOC

5 months

Beautiful men who are fighting click on onbeting.ru
click and you will be very satisfied.

GruzBit GruzBitRR

5 months

На прошлой неделе , нужно было заказать Штампы . По совету знакомых бизнеспартнеров которые уже пользовались услугами фирмы
lidr.info решил и я позвонить им.
Сразу скажу фирма лучше на фоне остальных конкурентов.
Стоимость вышла та, что и обговаривали с менеджером, я остался очень доволен и оставил положительный отзыв, да и в целом, цены в печатнике божеские. Вообщем, рекомендую!

GruzBit GruzBitRR

5 months

Недавно , нужно было заказать Штампы . По совету знакомых бизнеспартнеров которые уже пользовались услугами фирмы
pechatnik14.ru решил и я послушать совета.
Сразу скажу это реальные профи.
Стоимость вышла та, что и обговаривали ранее, я остался очень доволен и теперь всем их рекомендую, да и в целом, цены в печатнике божеские. Вообщем, рекомендую!

Robertpax RobertpaxNQ

5 months

Моя Реклама в http://pint77.com дает Заказчикам из Etsy заработки от 7000 до 100 000 usd в месяц. Ручная работа, Pinterest + SEO. Цена от 300 usd за месяц

Mauricestant MauricestantHW

4 months

Install the code on your website and build your subscriber base.
Earn money from each click your subscribers make on advertising in push notifications.
There is also a direct link available for promotion.
https://clck.ru/353Zx3
The minimum payout is only $5 across all payment systems.

SashaAccus Александр

3 months

Здравствуйте
проверенно мной)))..https://balloonsworldstore.it

https://balloonsworldstore.it/sitemap.php

https://hereyougo.life/

liboedouck liboedouckIC

3 months

Вчера мне срочно нужно было купить газ.
Коллеги по работе посоветовали купить здесь: t.me/AzotMarket. Решил заказать у них.
По итогу, свой товар по оставленной на сайте заявке получил довольно быстро, и совсем за небольшие деньги - мне все понравилось.
В общем, если вам нужно будет купить азот, то очень рекомендую.

Donovanmer DonovanmerRB

3 months

Currency exchange service for Cambodian riels to Thai baht
Cross-border fund transfers made easier with currency conversion
Depositing physical currency in Cambodian banks for Thai baht
Convenient cash withdrawal in Thailand using Krungsri bank ATMs
Seamless money transfer to designated bank accounts within the Thai banking network
https://images.google.dj/url?q=https://khrtothb.com
Seamless money transfer to designated bank accounts within the Thai banking network Seamless money transfer to designated bank accounts within the Thai banking network Seamless money transfer to designated bank accounts within the Thai banking network Currency exchange service for Cambodian riels to Thai baht Currency exchange service for Cambodian riels to Thai baht e81f68a

Antnop AntnopPM

3 months

บทความและคำแนะนำสำหรับการขยายขนาดอวัยวะเพศ

ขยายขนาดอวัยวะเพศ

JamessSak JamessSakPQ

3 months

StormGain is a crypto exchange where you can buy, sell and exchange various cryptocurrencies, including Bitcoin, Tether, Dash, Monero, Tron and other tokens. The exchange has a trading terminal available, as well as browser and mobile versions for user convenience.
However, the most unique feature of StormGain is the "miner" (faucet) feature that allows you to earn cryptocurrency without any investment. You can click a button every 4 hours to earn satoshis. Once your balance reaches the minimum amount of $10, you can transfer that money to your account.
You can then use your savings to trade on the exchange and withdraw your earnings at any convenient time. StormGain provides a unique opportunity for beginner traders who want to start trading cryptocurrency without large investments.
+you get 3$ for registration now Link to the exchange https://app.stormgain.com/friend/BNS73461703

OrlandoBoymn OrlandoBoymnAP

2 months

Fresh and free deepthroat popn! Watch -->

Fresh and free deepthroat popn! Watch -->

OrlandoBoymn OrlandoBoymnAP

2 months

You receive money transfer on 89.44$! Get money --> http://antinsa.site/fish/drac/xrumer/

You receive money transfer on 89.44$! Get money -->

You receive money transfer on 89.44$! Get money -->

CharlesSpelf CharlesSpelfNF

2 months

best server Conter strike source v34 https://vk.com/titan_publickcss

ZaimruSunny ZaimruSunnyHD

2 months

Уважаемый партнер

Пожалуйста, закажите ту услугу о которой переписывались ранее.
https://ozaim.ru/oformit-kartu-kreditnuju/

ohuxule uhyuwfawaez

2 months

http://slkjfdf.net/ - Ujetahw Ehrosa jyv.ohyi.nextfin.uk.ujx.ne http://slkjfdf.net/

Qsinasbsi Qsinasbsi

2 months

Hello!
SOLO STREAM! We run, we die, we make enemies in RUST
https://lan05.biz/?p=gmztcnjxg45gi3bpgy3tsny

Dextersyday DextersydayQU

1 months

Google confirmed that it will continue to approach & use hreflang annotations in search.

Also visit my site – international seo marketing https://testxr10dsawer.com

Gsayasdxn Gsayasdxn

1 months

Make payments all over the world. PAYEER supports more than 200 countries.
https://clck.ru/365BH8

SventSpelf SventSpelfRF

1 months

best server Conter strike source v34 https://kvk.com

liboedouck liboedouckIC

1 months

Beautiful wrestlers who are fighting be found on all-in-betting.com
Visit us and you will be very sated.

Edwardmub EdwardmubSO

5 days

Hello gordon

We reserve the right to remove comments which are inappropriate and/or offensive.
Comments are not the opinion of Nextfin.uk. Please read the comment guidelines
  • Internet Business Awards Category Award Winner 2015
  • Hertfordshire Business Awards Finalist 2014

As seen in:

  • The Guardian
  • Financial Times
  • Yahoo! Finance
  • The Times
  • The Daily Telegraph