There are two broad platform-based crowdfunding categories, within which two-two types are distinguished.
Not regulated (self-regulatory) types of crowdfunding:
- In case of donation-based crowdfunding, in order to realize a social or business project, the project owner turns to the crowd for support, in exchange for which the donors do not receive any reward or return. This type of crowdfunding can be used to validate a business model, too: very early-phase companies (in the idea stage) might launch donation-based campaigns.
- In case of reward-based crowdfunding, usually the business idea (which can either be a book, a film, music or any other type of product) has already been realized, but the project owner requires funding to finalize the product and start mass production. Similarly to donation-based crowdfunding, successful campaigns might not be followed by further ones and we might not hear from the company afterwards, but this type of crowdfunding could also be suitable to kick-start a company. Those companies, which raised funding from the crowd even in a very early phase, will also probably seek investment in a later phase via a crowdfunding campaign.
Regulated types of crowdfunding (crowd investing):
- Equity-based campaigns are usually launched by established early-phase companies, which do not aim to launch a certain product but rather a sustainable business model. This type of crowdfunding could be suitable not only for innovative but also for social impact ventures. Since in case of this type of crowdfunding the investors receive shares (not the product) – the value of which is determined by the future performance of the company as well as the market -, it is essential that the campaign owner shares all the important information with the investors. Therefore, crowdinvesting campaigns require investor protection, and the process of capital raising is regulated. In Hungary the applicable law includes the Civil Code of Hungary, the Act on the Capital Market, the EU Prospectus Regulation and the upcoming Regulation on European Crowdfunding Service Providers.
There are many other models of equity-based crowdfunding, adapting to the regulatory regimes (in particular tax regimes) of specific countries:
- In case of direct investment, each investor becomes a shareholder of the Campaign Initiator company. At the same time, in order to conduct a more efficient corporate governance, it is possible to assign a Lead investor to the Campaign, to whom the other investors transfer their voting rights.
- In case of indirect investment, the investors receive the dividend payments and their return in case of an exit through an asset management company (SPV, Special Purpose Vehicle).
- Lending-based crowdfunding is suitable for more mature companies to finance large projects by getting a loan through the portal in exchange for specified interest payments.