The most popular type of crowdfunding is rewards based. Sites like Kickstarter and Indiegogo fall into this category. It sounds simple because it's free to start a campaign and you can collect funding from anywhere. If the campaign is successful, donors get the promised rewards.
Another form of crowdfunding falls under the equity category. This can help you achieve larger donations, but these donors are essentially investors, buying shares of your business. There are two other forms of crowdfunding that are less popular for businesses, debt and donation. With the debt method, everything you receive is a small loan that must be paid back. Donation is a no-strings-attached method, but this works more for a non-profit organisation.
There are many benefits including raising brand awareness, extending your reach and gaining faster access to funds. Even if your campaign isn't successful, with the rewards based type, you'll still be exposing your idea to potential customers. The publicity of any online campaign will extend your reach and possibly open up new markets. With the rewards format, you can gain access to funds with few limitations other than sending out the promised rewards. With the equity format, you can reach new investors that you may not have considered reaching out to.
However, each method has some drawbacks. In the debt method, having to pay back the loan is an obvious one. For the equity method, the investors will have a longstanding interest in your company and some control over how you do business. With the rewards method, it's often all or nothing; that is, if you set a goal of $10,000 and you get $9,500 in pledges, you get nothing.
Consider which, if any, works best for you. If your product has a high public appeal, it may be worthwhile to try a rewards based site and aim to make your idea go viral. If you're after investors but having trouble finding pitching opportunities, the equity based method might work best for your company.
Types of crowdfunding
Choosing the right funding source for your business