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Crowdfunding If Your Looking For Funding Could It Be Suitable

Crowdfunding – A Simple Explanation

Crowdfunding is a method of getting finance by sourcing small amounts from a relatively large number of people rather than getting large amounts from one or a few. While this is something that has a long history it has become increasingly popular recently in its modern form of online crowdfunding. This allows individuals or organisations to source funds from anyone via a website or crowdfunding ‘platform’

Crowdfunding If Your Looking For Funding Could It Be Suitable

Simplified Diagram Of The Crowdfunding Process

Simplified-diagram-showing-crowdfunding-process

Crowdfunding is FCA regulated in the UK

Crowdfunding platforms host fundraisers’ pitches and facilitate the transfer of money directly from the funders to the fundraiser. They usually perform some level of vetting before allowing pitches on the platform and are generally open for anyone to contribute funds. In some cases, especially equity crowdfunding, only certain individuals are allowed to commit capital due to the high risk nature of equity investing in unlisted companies. Fees are charged to either the fundraiser, funder or to both.

Potential Benefits of Crowdfunding

  • it can be a fast way to raise finance with no upfront fees
  • pitching a project or business through the online platform can be a valuable form of marketing and result in media attention
  • sharing your idea, you can often get feedback and expert guidance on how to improve it
  • it is a good way to test the public’s reaction to your product/idea – if people are keen to invest it is a good sign that the your idea could work well in the market
  • investors can track  your progress – this may help you to promote your brand through their networks
  • ideas that may not appeal to conventional investors can often get financed more easily
  • your investors can often become your most loyal customers through the financing process
  • it’s an alternative finance option if you have struggled to get bank loans or traditional funding

The drawbacks of fundraising

  • The Crowdfunding process normally takes about 3 months – during this time it will potentially consue all of your time 24/7
  • With crowdfunding you typically need 40% of the money lined up before you start
  • it will not necessarily be an easier process to go through compared to the more traditional ways of raising finance – not all projects that apply to crowdfunding platforms get onto them
  • when you are on your chosen platform, you need to do a lot of work in building up interest before the project launches – significant resources (money and/or time) may be required
  • if you don’t reach your funding target, any finance that has been pledged will usually be returned to your investors and you will receive nothing
  • failed projects risk damage to the reputation of your business and people who have pledged money to you
  • if you haven’t protected your business idea with a patent or copyright, someone may see it on a crowdfunding site and steal your concept
  • getting the rewards or returns wrong can mean giving away too much of the business to investors

For more information on fundraising click here or to contact a marketing and sales expert click here

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