Private equity crowdfunding is one of the popular types of crowdfunding platforms. There are multiple benefits that the other types of crowdfunding platforms fail to offer, but private crowdfunding manages to incorporate these benefits seamlessly into their services.
This is why private crowdfunding platforms are so widely used. In this article, we’ll discover the types of crowdfunding platforms there are, and we’ll also share the benefits you can expect to receive from private equity crowdfunding. Let’s get started!
Types of Crowdfunding
There are a total of five crowdfunding models. In this section, we’ll take a brief look at five models and we’ll take a deep dive into private crowdfunding in the later sections.
1. Donation-Based Crowdfunding
Donation-based crowdfunding platforms are where the donators donate resources without the promise of getting anything in return. In short, these are like online charity programs.
2. Private-Equity Crowdfunding
Private equity crowdfunding is where the donators receive a share in the company, they’re investing in. Due to the incentive, private-equity crowdfunding grows much faster.power of crowdfund
3. Reward-Based Crowdfunding
Reward-based crowdfunding is where the donators receive gifts from the company or individual, they’re investing in.
4. Debt Crowdfunding
As the name suggests, debt crowdfunding is where the donators donate money but the fundraisers need to give the money back after a specific time.
5. Real-Estate Crowdfunding
In this type of crowdfunding, investors gain a share of the property they’re investing in. What makes this suitable is that the investors don’t have to donate a huge amount, and there’s no obligation of owning the entire property.
How Private Crowdfunding Works
Essentially, private crowdfunding is a blend of the traditional private equity model and the modern crowdfunding business model. How this works is, through private crowdfunding, a/ business can raise funds with the help of individual and organizational investors, both of whom can gain a share of the fundraiser’s company. Other than shares, some platforms allow investors to secure equity interest as well.
Certain factors such as shares, debts, and convertible notes, make the platforms secure for investors. Due to the flexibilities and accessibility offered by the private crowdfunding model, this is becoming increasingly popular among small companies, startups, and entrepreneurs.
As we’ve shared earlier, Private equity crowdfunding companies tend to raise funds by selling securities in form of convertible notes, revenue shares, and debt. One important thing to note here is that the securities must come from a private company that isn’t on any stock exchange.
In the early days of private equity crowdfunding, the power to invest was reserved for qualified investors only. The title of the qualified investor was awarded only to people who had a specific amount of capital.
However, thanks to the progression and increasing popularity of this model, such restrictions were lifted, and now anyone can invest in private equity crowdfunding platforms and reap their benefits.
Through the flexibility it offers, the private crowdfunding model has changed the entire market scenario. Previously, a company had to issue an expansive prospectus had to go public if it wanted to raise funds from the public. The drawback with this is that the company had to be an established one with a large sum of capital for going public in the first place. This means start-ups or small capital businesses couldn’t raise funds.
Thanks to private crowdfunding, now any business can raise funds, irrespective of what their status is.
Benefits of Private Crowdfunding
As expected, there are multiple benefits that you can expect to receive from private equity crowdfunding. However, each type of crowdfunding offers a different set of benefits, and it’s important to determine which set of characteristics will be the most beneficial for you.
To help you determine whether private equity crowdfunding will be beneficial for you, we’ll share the benefits of this type in this section.
1. No Dilution of Power
In the conventional form of crowdfunding, usually, there’s a dilution in the power within a company. Such consequences are seen most in certain traditional crowdfunding models such as venture capital. However, such consequences aren’t observed when funds are raised through private equity crowdfunding.
This is because, even though the number of shares is increased through private equity crowdfunding, the number of investors is also huge. This prevents power to concentrate on a specific private group.
Thus, the business can retain more power over its decisions, and it also allows the investors to brainstorm freely and input whatever idea they can come up with if they’re willing in the first place. This allows the business to refine its ideas to the purest form.
2. Promising Returns
This benefit applies to investors. Even though startups are usually risky, it’s always possible that the business will take the right decisions and will provide enough return to make up for the initial investment.
So, we believe that if the investors can do some research before investing in any startup, they’re very likely to get lucrative returns from their investment. Even though there’s always a chance of things taking the wrong turn, the flexibilities of the private equity crowdfunding model tend to make things much more favorable for the investors.
3. Easier Access to Resources
Another major drawback of the conventional forms of fundraising models is that they don’t allow the fundraisers to showcase their campaigns to a large number of people. In the case of fundraisers, the more people you can expose your campaigns to, the higher funds will you be able to raise.
This is where the private equity crowdfunding model truly shines. These platforms allow you to share and boost your campaign on social media as well as other platforms. So, you’ll be able to push your campaign to a huge amount of crowd, which in turn will help you raise more funds.
As you can see, private crowdfunding makes life much easier. It not only allows any kind of business to raise funds, but it also allows them to reach a lot of people easily. What makes these even better is that anyone can invest, and they’ll get a share for their donations too. So, the fact that these are famous comes as no surprise.