C rowdfunding is a method of raising capital for businesses in all stages of growth thus enabling companies to launch projects and sell their products at little cost. The primary forms of crowdfunding include donation-based, rewards-based, equity-based crowdfunding and lending-based crowdfunding. Donation-based crowdfunding yields no financial return to the investors or contributors, such as charities, non-profit initiatives, medical bills, disaster relief.
Rewards-based crowdfunding definitely yields « rewards » to investors or contributors, typically in the form of the product or service the company offers (product validation, pre-selling, sponsoring) and never financial or equity return. Equity-based crowdfunding allows investors and contributors to become part owners of the company by trading capital for equity shares, they receive a financial return on their investment and ultimately receive a share of the profits in the form of a dividend or distribution.
Lending-based crowdfunding yields rewards in the forms of interests and paybacks at the end of the lending period (such as P2P lending), one of the models being “revenue sharing”, when the creditor does not receive interests but an agreed share of the profits of the company.
The Initial Coin Offering (ICO) is considered as an alternative, but different form of crowdfunding, where money is raised for some project in the initial stage while being open to public.
Although some major differing characteristics include that ICOs are usually hosted on the blockchain platform and it corresponds to the technology project or platform, while crowdfunding can be limited geographically and usually results in the creation of physical platform or project.