Business Loans

What’s the Difference: Crowdfunding vs crowdsourcing

Belinda Wan
December 13, 2021

The power of the masses: You’d be surprised at what crowdfunding and crowdsourcing can achieve when like-minded individuals put their heads together. Photo credit: Unsplash


         

Sharing is a big thing these days – from group buys to ride-sharing (well, before the pandemic hit, anyway), to coworking, it seems like it’s a thing to share resources in order to save time, money and effort. As they say, sharing is caring.

The theory does make sense in this shared economy – after all, two (or many) heads are better than one – which is probably how crowdfunding and crowdsourcing came about. 

But how are both terms different from each other?


What crowdfunding means

As its name suggests, crowdfunding makes use of the power of the crowd to raise funds.

This is usually done through an online platform or portal that brings together an individual or entity in urgent need of funds with people who are willing to contribute various amounts of money to what they deem to be a good cause.

In case you’re wondering why anyone would donate money to complete strangers, you’d be surprised – Singaporeans are quite a generous lot, as seen in this instance.

The causes vary – it could be for anything from individuals hoping to raise enough money for their sick child, to accident victims appealing for funds, to those appealing against unfair treatment under various circumstances, or businesses hoping to raise funds for a new (and often unproven) business idea they have.

In fact, in the business arena, crowdfunding has taken off in a big way of late, especially among SMEs who find it hard to get financing from banks and other financiers due to high barriers to entry. Hence, by harnessing the power of the Internet, startups and SMEs can raise capital for their outfits.  

Sometimes, even established companies may decide to turn to crowdfunding to raise funds for new company ventures, especially if these new offshoots are decidedly niche and do not appeal to existing shareholders.

There are four main types of crowdfunding:

Donation-based – This is when donations are solicited for a charitable cause.

Equity-based – Individuals are allowed to buy shares in a company and in doing so, have a share in the profits.

Lending-based – Also known as peer-to-peer (P2P) lending, this is when various individuals give a loan to a company, after which the company repays the loan along with interest.

Rewards-based – This is when individuals give money to a company in return for some form of a reward in the near future.

There is no fixed reason as to why an individual should feel motivated to make a donation, buy shares or contribute towards a company’s growth.

The main criteria would be that the cause or company has to appeal to the individual, who may deem it to be worthy enough such that he or she wants to have a share in contributing to it.


What crowdsourcing means

Both crowdfunding and crowdsourcing make use of the power of the masses to achieve certain goals, but this is where the similarity ends.

While crowdfunding involves gathering funds from the masses for a specific cause, crowdsourcing involves getting people to solve a particular problem that requires substantial resources, time and effort.

For instance, a request put out by a company on a crowdsourcing platform to find skilled computer programmers, web developers or even trained hackers may yield far better results more quickly than if the company had relied on contacts, good ol’ word of mouth or referrals.

Indeed, apart from giving wider access to a skilled workforce, crowdsourcing can be applied to other areas. When done properly, it can shorten the time it takes to complete a project, and improve capabilities and cost effectiveness – simply by getting more resources and hands on deck.

Hence, the biggest difference between crowdfunding and crowdsourcing is what each hopes to achieve. Crowdfunding seeks to raise funds for a specific purpose – but crowdsourcing is used as a means of getting more skills, talent, resources and information.


Crowdfunding regulations

In 2015, there were some regulatory guidelines drawn up by the Monetary Authority of Singapore (MAS) with regard to securities-based crowdfunding.

This refers to how SMEs or startups can obtain alternative sources of funds by offering securities to accredited investors and institutional investors. Find out more here and here.

Under Singapore’s existing rules of securities regulation, some exceptions apply with regard to small offers, private placements, and offers to institutional investors or accredited investors. Read more here.

Above all, it is crucial to choose a reputable crowdfunding platform. Out of the four types of crowdfunding mentioned earlier, only lending-based crowdfunding and equity-based crowdfunding are subject to MAS’ regulations, as they are based on financial return models.

One of the regulations states that since such platforms are partly acting as financial intermediaries, they are required to get a Capital Market Services License (CMS) that is issued by MAS. Both lending-based crowdfunding and equity-based crowdfunding platforms are likely to need this license.

Companies seeking lending-based crowdfunding are also subject to regulations. MAS stipulates that the company appealing to the public to contribute funds should offer debentures as security. Debentures are a type of long-term security with a fixed rate of interest, which is issued by a company and secured against assets.

The company soliciting funds must also prepare and register a prospectus with MAS.

For equity-based crowdfunding, MAS administers it in a similar way that it governs debt-based crowdfunding. The crowdfunding platform is required to have a CMS license for both instances. If the platform offers investment-related financial advice, it should hold a license to act as a financial advisor.


Getting started with crowdfunding

SME owners who are interested in exploring lending-based crowdfunding platforms can consider Funding Societies. In 2019, the platform gave out $1 billion in loans, making it the largest SME financing and debt financing platform in Southeast Asia. It specializes in short-term financing for SMEs, funded by individual and institutional investors.

Another good one to try is MoolahSense, a digital lending platform.

Other examples of P2P lenders include P2P lending and invoicing platform Capital Match, digital financing and credit investment platform Validus Capital and leading digital investment platform Minterest.

Equity-based crowdfunding platforms typically charge a 5-8% fee for their services, which entail allowing businesses to sell their company shares to a large pool of investors in order to obtain funding. 

One such platform is FundedHere, one of Singapore’s first crowdfunding platforms.

Set up in 2015, it offers both equity- and lending-based crowdfunding, and connects high-potential tech startups in China and Southeast Asia to professional and accredited investors.

Another equity-based platform to try is OurCrowd, which may be suitable for those who have excess funds on hand and want to invest in startups and exclusive venture funds for free.


Getting started with crowdsourcing

The scope for crowdsourcing is considerably wide, but in Singapore there are some notable examples of crowdsourcing.

One of these is Giving.sg, a platform launched by the National Volunteer and Philanthropy Centre, a one-stop crowdsourcing platform where local charities can appeal to the public for funds. More than 600 charities and over 1,400 campaigns can be found here. 

The Infocomm Development Authority of Singapore (IMDA) also launched IMMConnected, a mobile application that tapsvoluntary crowdsourcing to improve the mobile broadband user experience by examining aspects such as broadband speed, latency and mobile cellular network coverage.

Or try EY Singapore, which aims to be “builders of a better world”. EY MillionYou crowdsourcing combines its experience in building platforms with its super-fluid platform to “unlock the power of communities to foster consumer-brand connectivity, create frictionless customer experiences, and drive innovation and culture change”.

Even the government is tapping crowdsourcing now to solve problems faced by Singaporeans through the Ideas! platform, where various challenges are posted. Read more here.

Meanwhile, SME owners who need working capital and want more choices for a business loan can look no further than Lendingpot, Singapore’s leading fee-free digital loan marketplace with a diverse network of 45 lenders, and which does not charge SMEs any fees.

Lendingpot’s mission: To make financing a lot easier for SMEs by lowering the barriers to entry; and getting around the problem of information asymmetry by offering SME owners more loan options through just one online application.

It does this by acting as a neutral intermediary between SME owners in need of a loan, and various types of lenders – from banks, non-bank financial institutions, P2P lenders, private lenders, and venture debt providers.

This, in itself, is akin to a form of crowdsourcing, where more people come together on a platform to solve a common problem.

It not only saves time and reduces effort, but also taps the power of our partner network to offer better price points and more targeted recommendations to SME owners who are often short on time, options and money.

Sign up here to apply for free now, or try our property valuation tool and loan eligibility check – also for free.


Leading digital loan marketplace Lendingpot connects SMEs to its network of 45 lenders comprising relationship managers from banks, financial institutions, and private and peer-to-peer lenders in Singapore for free. It aims to help SMEs overcome the information asymmetry problem and lack of transparency prevalent in the SME financing sector by offering SMEs financing options such as business term loans, property loans, revenue-based financing, credit lines, working capital loans, bridging loans, invoice financing, and more.


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Leading digital loan marketplace Lendingpot connects SMEs to its network of 45 lenders comprising relationship managers from banks, financial institutions, and private and peer-to-peer lenders in Singapore. It aims to help SMEs overcome the information asymmetry problem and lack of transparency prevalent in the SME financing sector by offering SMEs financing options such as business term loans, property loans, revenue-based financing, credit lines, working capital loans, bridging loans, invoice financing, and more.

About the author

Belinda loves thinking about random stuff, and collecting useless bits of facts and trivia. She often roots for the underdog, and believes the world needs more happy endings.

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