Question 1.
Introduction.
Crowdfunding is way to raising money to finance project and business. It enables fundraisers to collect
Money from money from a large number of people via online platforms. Crowdfunding is most often
used by startups company or most often used by startup companies or growing business as a way of
accessing alternative [Link] example 2012 $2.7 billion was raised online via crowdfunding to finance
over 1.1 million campaigns. An estimated $5.1 billion was expected to be raised in 2013 and the growth
trend is forecasted to continue (Massolution 2013).According to [Link] and the World Bank,
crowdfunding will surpass$300 billion in funding transactions by 2025 this is according to Meyskerns &
Bird, 2015) act. The following are the models of crowdfunding are;
Donation-Based Crowdfunding
Donations-based crowdfunding allows individuals (donors) to send money to people (or projects) in
need (beneficiaries), with no financial (return) consideration in exchange for their money. This form of
crowdfunding is used primarily in the nonprofit sector to support various causes (social, environmental,
political, charitable). The platform derives its revenue stream primarily from fees collected from each
donation (typically 5 percent or more, see Box 3). example of charges. All donations go through the
GlobalGiving Foundation, a registered 501(c)3 nonprofit organization. There are no costs for nonprofits
to join GlobalGiving, but GlobalGiving retains a 15% fee on donations. When a donor makes a $100
donation, $85 goes to the project(s) of his/her choosing, and $10 goes to fund the many programs and
services we offer nonprofits. Then $3 goes to cover standard credit card or transaction fees, and the
remaining $2 goes to administrative costs of running GlobalGiving.
Reward-Based Crowdfunding;
Reward-based crowdfunding allows funders (donors) to contribute to campaigns in exchange for a
nonfinancial reward. Rewards often take the form of tokens of appreciation (artist’s autograph,
mentioning the donor’s name in the credits, T-shirt) or the prepurchasing of a product or service (the
actual invention) according to the contributed amount. Reward-based crowdfunding shares many
commonalities with donation-based crowdfunding, and sometimes is included in the same category
(Vargas, Dasari, and Vargas 2014). In addition to the key motivations described for donation-based
crowdfunding, donors expect a more tangible outcome of their investment. Revenues for a platform
come from the fees deduced from each contribution (see Box 4). There are two main common
subcategories of reward-based crowdfunding: (i) all-or-nothing and (ii) keep-what-you-raise. Example of
Charges “Fees are only charged on successfully funded projects. We charge 5%, in addition to any fees
from our payments partners”
Debt Crowdfunding
Debt crowdfunding allows funders (lenders) to directly lend to fundraisers or invest in debt obligations
issued through a platform. Debt crowdfunding is also known loans. There are different subcategories of
debt crowdfunding distinguished by who the funders and fundraisers are: P2P lending, peer to business
(P2B) lending, Business B2B lending. Examples platforms such as kiva or lending club.
. Equity Crowdfunding
Equity crowdfunding allows individual and institutional investors to invest in unlisted entities (issuers) in
exchange for shares in the entity. By definition, equity crowdfunding serves funding of legal entities that
can raise funds by selling their equity. It is suitable for start-ups and SMEs, in particular. If an investment
target is reached, the deal is closed between the pool of funders, the issuer, and the platform. The
platform charges a commission based on the amount raised and, in some cases, on the basis of future
profit.