Definition of donation based crowdfunding

Donation-based crowdfunding plays a crucial role in the new wave of alternative finance and the future of our economy. It enables individuals to directly share their money with causes and projects that they feel strongly about and thereby empower others to create impact.

This form of crowdfunding essentially involves backers donating varying sums of money to support a specific cause or project. Sometimes they will receive a simple "thank you" or a special mention – or even a physical item such as a postcard – however, the pledge is essentially a donation. This model differs from reward-based crowdfunding which is generally applied to the financing of new products, and provides an item with a clear monetary value in exchange for a pledge.

Donation-based crowdfunding was established long before equity-based crowdfunding, where the donor invests money in return for equity in the venture (e.g. CrowdCube) and credit-based crowdfunding, also known as peer-to-peer lending, where an investor will expect a financial return with interest (e.g. Funding Circle).

The donation-based crowdfunding model is changing the face of education. Not only is it being added to the curriculum of many business schools, it is also providing vital additional funds for student fees (e.g. StudentFunder) and projects at both universities and schools (e.g. hubbub.net codeclub.co.uk). Only 1 per cent of all existing university alumni fundraising is done online, but around £882m is donated to UK universities by alumni. Donation-based crowdfunding makes alumni giving more efficient, transparent and social, so the opportunity to increase both the amount given, and the amount given online, is significant.[1]

 

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