Crowdfunding. Heard of it? Wondered what it is? Basically it is an innovative way of sourcing funds to finance projects and businesses, it lets fundraisers collect money from a variety of people via online platforms. Read our guide for the lowdown on getting started…
Crowdfunding: The Guide
Start-up companies or growing businesses most often use Crowdfunding to raise alternative funds. It can also be a way of promoting your offering to a community. Plus, by using the power of the online community, you can gain useful market insights and access to new customers.
The EU has published a ‘Crowdfunding explained’ guide, aimed at entrepreneurs, businesspeople and companies – particularly small and medium enterprises. If you are thinking about how you can finance a new business or idea, or have heard about crowdfunding and want to find out more, it is a useful starting point.
The guide gives you unbiased advice to help you understand the three most common types of crowdfunding used by profit-making SMEs and start-ups – peer-to-peer, equity and rewards crowdfunding.
I have reproduced the introduction to the guide below, but if you would like a full copy, please email us at firstname.lastname@example.org.
Crowdfunding: How It Works
Crowdfunding platforms are websites that enable interaction between fundraisers and the crowd. Financial pledges can be made and collected through the platform, and fundraisers are usually charged a fee by crowdfunding platforms if the fundraising campaign is a success. In return, crowdfunding platforms are expected to provide a secure and easy-to-use service.
Many platforms operate an all-or-nothing funding model. This means if you reach your target you acquire the money, and if you don’t, everybody gets their money back – no hard feelings and no financial loss.
Crowdfunding: The Categories
There are a number of crowdfunding types…
The crowd lends money to a company with the understanding the money will be repaid with interest. It is very similar to traditional bank borrowing, except you borrow from a number of investors.
Equity crowdfunding is similar to how common stock is bought or sold on the stock exchange, or to a venture capital. The company sells a stake of their business to a number of investors in return for an investment.
Individuals donate money to a project or business with the expectation of receiving a non-financial reward in return, such as goods or services for their contribution.
Individuals donate small amounts of money to meet the larger funding aim of a specific charitable project, receiving no financial or material return.
Businesses can share future profits or revenues with the crowd in return for initial funding.
Individuals invest in a debt security issued by the company, such as a bond.
Hybrid models offer businesses the opportunity to combine elements of more than one crowdfunding type.
If you would like to learn more about other routes to funding your business, feel free to contact me on 01788 577 613 or by email. I would be happy to learn more about your business and its market – and give you some guidance on routes to raising finance / funding.