Crowdfunding is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet. Crowdfunding is a form of crowdsourcing and of alternative finance. In 2015, it was estimated that worldwide over US$34 billion was raised this way.
Current crowdfunding model is generally based on three types of actors: the project initiator who proposes the idea and/or project to be funded, individuals or groups who support the idea, and a moderating organization (the “platform”) that brings the parties together to launch the idea.
The two primary types of crowdfunding are:-
1. Rewards crowdfunding: entrepreneurs presell a product or service to launch a business concept without incurring debt or sacrificing equity/shares.
2. Equity crowdfunding: the backer receives shares of a company, usually in its early stages, in exchange for the money pledged.
Reward-based
Rewards-based crowdfunding, also called non-equity crowdfunding has been used for a wide range of purposes, including motion picture promotion, free software development, inventions development, scientific research, and civic projects. The funding for these projects is distributed unevenly, with a few projects accounting for the majority of overall funding.
Equity
Equity crowdfunding is the collective effort of individuals to support efforts initiated by other people or organizations through the provision of finance in the form of equity. It allows allow for a wider pool of small investors with fewer restrictions. Unlike non-equity crowdfunding, equity crowdfunding contains heightened “information asymmetries”.
Software value token
Another kind of crowdfunding is to raise funds for a project where a digital or software-based value token is offered as a reward to funders which is known as Initial coin offering (abbreviated to ICO). Value tokens are endogenously created by particular open decentralized networks that are used to incentivize client computers of the network to expend scarce computer resources on maintaining the protocol network.
These value tokens may or may not exist at the time of the crowd sale, and may require substantial development effort and eventual software release before the token is live and establishes a market value. Although funds may be raised simply for the value token itself, funds raised on blockchain-based crowdfunding can also represent equity, bonds, or even “market-maker seats of governance” for the entity being funded.
Debt-based
Debt-based crowdfunding (also known as “peer to peer”, “P2P”, “marketplace lending”, or “crowdlending”) where Borrowers apply online, generally for free, and their application is reviewed and verified by an automated system, which also determines the borrower’s credit risk and interest rate. Investors buy securities in a fund which makes the loans to individual borrowers or bundles of borrowers. Investors make money from interest on the unsecured loans; the system operators make money by taking a percentage of the loan and a loan servicing fee.
Litigation
Litigation crowdfunding allows plaintiffs or defendants to reach out to hundreds of their peers simultaneously in a semiprivate and confidential manner to obtain funding, either seeking donations or providing a reward in return for funding. It also allows investors to purchase a stake in a claim they have funded, which may allow them to get back more than their investment if the case succeeds (the reward is based on the compensation received by the litigant at the end of his or her case, known as a contingent fee or success fee.
Donation-based
Charity donation-based crowdfunding is the collective effort of individuals to help charitable causes. In charity crowdfunding, funds are raised for pro-social or pro-environmental purposes.
TWEX Ltd. & Crowdfunding
We at TWEX Ltd. have, after identifying a series of promising companies launched an ERC-20 Token (TWEX) which is a Software value token, in order to raise money to lend to these companies. Buyers of TWEX Tokens during the Token Generation Event stage also receive ownership of smart contracts issued by each company traded on the TWEX platform for reimbursement of the borrowed capital by each company and for profit-sharing from each traded company.
Rewards of investing in TWEX Ltd.
TWEX Tokens also pay 30% of all profits generated by the platform to each TWEX Token holder on a prorated basis. Each company traded on TWEX also pays 1% of their sale augmentation post funding to the TWEX Ecosystem and 0.5 % to TWEX the company — a portion thereof being redistributed among TWEX Token holders irrespective of ownership of the various smart contracts issued during ICO phase. Each such smart contract can be traded and sold while keeping the TWEX Token. Similarly, new investors can decide to acquire some smart contracts while not owning any TWEX Tokens.
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