Like the name suggests, in a lot of donation-based crowdfunding, there isn’t always a reward beyond the gratitude of the project creator or beneficiary (and possibly a tax deduction). Donation-based crowdfunding is typically used to raise money for a non-profit or a cause, like drilling a well or building a school or for a personal campaign like an individual’s treatment or medical bills.
In equity-crowdfunding, investors give larger amounts of money . When investors give the money, they don’t get a reward, but instead, a small piece of equity in the company itself. As a result, equity crowdfunding is typically used to raise money to fund the launch or growth of a company, not just initiate a creative project or cause. Often, these companies go on to raise money from angel investors or venture capitalists.
In debt-crowdfunding, it’s not “backers” or “donors” who give money, but Private lenders (sometimes these lenders are called investors). Unlike other forms of crowdfunding, it’s NOT an exchange for a reward or equity. The investors don’t get a reward and they don’t get a piece of equity in the company, but instead they make a loan with the expectation to get paid back the principal plus interest. So it’s a lot like loan from the bank, but instead of borrowing one larger amount of money from one bank, you borrow smaller amounts of money from multiple people.
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