What are the different types Crowdfunding Platforms in the UAE?

Blog Author
Funding Souq Editorial Team
Tech Writer
Jun 20, 2024
Funding Souq’s editorial team comprises experienced finance and investment professionals that are on a mission to fuel SME growth, create jobs, and drive the economy forward. They aim to share their extensive experience and industry know-how to empower entrepreneurs and investors alike.
Jun 20, 2024
Table of Contents

Crowdfunding is a fairly simple concept: a large number of people pool together small bits of money to finance a larger goal. Its effect though has been revolutionary.


Over the past two decades, a growing number of platforms have emerged to allow more people than ever to quickly combine their financial resources. Today more people than ever are using this strategy in lieu of traditional bank loans, financing everything from personal pet projects to major real estate developments. 

 

Why has it taken off? On the one hand, the hyperconnectivity of the Internet and social media age is enabling people and money to link up like never before. Also, important changes to regulations around crowdfunding have made it all the more possible (specifically the 2012 JOBS Act,


which changed rules around capital formation and allowed exemptions for crowdfunding). Beyond that, a lot of people are simply making good returns by investing on crowdfunding platforms. So it’s a win-win for countless people involved.

 

The result has been an explosion of crowdfunding platforms across different geographies and for different – and increasingly niche – purposes. Whether you’re in need of cash or have a small amount to invest yourself, below is a primer on the growing force that is crowdfunding.

 

1. Donation-based crowdfunding

 

Probably the most well-known area of crowdfunding involves donations. This is how the concept first got started. Large numbers of people took to the Internet to raise money for good causes with no strings attached (think expensive medical procedures or emergency disaster relief). The results have often been spectacular: In 2017 NFL Player JJ Watt raised over $41 million via YouCaring for Hurricane Harvey Relief. A similar campaign raised millions of dollars to help repair the Notre-Dame Cathedral after it caught on fire in 2019.

 

The major donation-based platforms include:

     GoFundMe

      Fundly

      JustGiving

      YouCaring

 

2. Reward-based crowdfunding

 

Reward-based crowdfunding is where platforms begin wading into commerce. Here financial backers pledge money in return for something tangible – it can be small, like an acknowledgment of gratitude, or substantial, like a final product or service.

 

Over the years, campaigns to attract financial backers have become increasingly professionalized, with high-quality videos and marketing materials accompanying sophisticated pitches. Nowadays successful campaigns often transition into fully fledged e-commerce businesses.


When campaigns go viral they can turn small-time projects into serious businesses overnight. A famous example is
Exploding Kittens, a card game, which sought to raise $10,000 on Kickstarter and ended up raising $8.7 million in 30 days with a whopping 219,000 backers.

 

For reward-based crowdfunding, the popular platforms include:

      Kickstarter

      Indiegogo

      Patreon

      GoFundMe

      Ulule

 

3. Equity-based crowdfunding

 

This is where things get interesting. The success of reward-based crowdfunding platforms like Kickstarter and Indiegogo to propel relatively small projects forward served as a sort of proof of concept in the 2000s, demonstrating that substantial interest (and money) could be pooled rather quickly from the general public. This has since paved the way for equity-based crowdfunding.

 

With equity-based crowdfunding individuals can fund early-stage companies and small businesses in return for a share, allowing companies to circumvent banks and venture capital to raise money. The crowdfunding ecosystem got another major assist from US regulators in 2021, when the SEC substantially raised the offering limit for companies.

 

Secondary markets are now even being set up so equity investors can more easily exit investments made on platforms. Meanwhile emerging AI technology is making it easier than ever to evaluate the finances of startups, manage risk, and tailor investment opportunities to potential investors.

 

Many successful companies have leveraged equity crowdfunding to great effect. For example, Knightscope, a company that builds security robots, raised over $90 million from more than 28,000 investors on StartEngine. Monzo, a digital banking company, raised over £20 million from 36,000 people on Crowdcube in 2018.

 

For equity-based crowdfunding, major players include:

      WeFunder

      Crowdcube

      StartEngine

      Seedrs

      Fundable

      Angelist

      SeedInvest

 

Learn more about: Debt Financing Vs. Equity Financing , Which is Better For Your Business


4. Debt-based crowdfunding

 

Often called peer-to-peer (P2P) lending, debt-based crowdfunding enables individual investors to pool money and lend to both businesses and individuals in return for interest payments, essentially replacing traditional bank lending. The loan types run the gamut: platforms facilitate personal loans, small business loans, auto refinancing loans, etc.

 

 

The platforms let investors choose which loans to fund based on their appetite for risk versus return. An algorithm assesses the borrower’s creditworthiness and assigns them a risk grade.


The borrower gets an interest rate based on that. Like elsewhere in the crowdfunding sphere, artificial intelligence is
supercharging platform capabilities, helping predict borrower behavior and more accurately assign credit scores. That’s exciting news, since it makes it less likely borrowers will default and improves transparency for investors.

 

Major players in debt crowdfunding, like LendingClub and Upstart, have even gone on to become publicly listed companies.

 

When it comes to debt-based crowdfunding, major players include:

      Zopa

      Prosper

      Lending Club

      Funding Circle

      Upstart

 

 Read more about: How debt-crowdfunding help investors & SMEs


5. Real Estate Crowdfunding

 

Finally, there’s real estate crowdfunding. As the name implies, this allows individuals to pool money together to invest in real estate properties. That means you can buy into revenue streams from properties, even with investment minimums as low as $500 on some of the platforms.


The platforms often offer both debt and equity investments in various types of real estate, and with access to both individual properties and REITs (Real Estate Investment Trusts). Here too artificial intelligence is making a splash, helping improve property evaluations and market analysis so investors can make smart decisions.

 

Some of the leading real estate crowdfunding platforms include:

 

      RealtyMogul

    Fundrise

      CrowdStreet

      PeerStreet

 


Read more about: Islamic REITs Vs. Conventional REITs

 



Disclamer:
Funding Souq Limited (DIFC) is regulated by DFSA.Funding Souq operates Islamic Window, pursuant to which it's Shariah Supervisory Board (SSB) has reviewed the Shariah Compliant structure, to which this marketing material relates. SSB Members are from Safwa Shariah Advisory Pvt. Ltd., whose details are available on Funding Souq website. SME Financing carries a potential default risk which may result in loss of all or part of your investment, incur costs or delays in receiving payments.

 

 

fsicon
Funding Souq
Take your company to the next level with finance that arrives in days.
Get funded
Related Articles
blogImage

Dilutive vs Non-Dilutive funding

Jun 25, 2024
There are many options companies can take when looking for funding, which they will need at various times during its growth. Debates in the boardrooms of startups usually hover aro
blogImage

UAE lending is growing – will it continue to the end of 2024?

May 18, 2024
Lending across the UAE saw stellar growth across the board in 2023, with both retail and corporate lending seeing a rise last year, according to data from the UAE’s central b
blogImage

Debt versus Equity: How Should You Fund Your Business?

Apr 05, 2024
Everything comes with a price – even money. If you want your company to be the next unicorn, you’re going to need financing. Most successful firms use a blend of debt a

This website uses cookies to enhance your experience. By clicking "Accept," you agree to the use of essential analytics and marketing cookies. Blocking some cookies may impact your experience. For details, see our .