1. What is crowdfunding?
Crowdfunding - also known as crowd financing or crowd sourced capital - is an alternative form of business angel investment. Usually conducted online, it allows a number of investors to individually invest smaller amounts of money into a business. The individual investments are then pooled together to help a business reach its funding target.
Crowdfunding can be a good option for businesses that have struggled to raise finance through loans or other conventional funding methods, but you should make sure your idea is protected before putting it on a crowdfunding website.
2. The process
You can submit a pitch to a crowdfunding website that summarises your business and what you want to achieve with the investment. Your pitch should also list the amount that you want to raise and the percentage share of your business that you’re offering in return for reaching your funding target – if you’re willing to take on external investors.
Most crowdfunding websites won’t charge you for publishing a pitch, but they may take a commission when you reach your target – so you need to factor this into your investment total.
You may want to offer a reward to investors as an incentive to invest in your pitch. For example, you could offer a discount on your services or products.
Investors using crowdfunding will usually look for:
- evidence of early stage development or expansion
- a business that shows potential for a high return on their investment
- a business in sector that they have a personal interest in
3. Pros and cons
- crowdfunding can help you raise awareness for your new business
- it can be a fast way to raise finance and there are no upfront fees
- investors can track your progress and may help you promote your brand through their networks
- it’s an alternative option for businesses that struggle to get bank loans or conventional funding
- 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
- if you don’t reach your funding target, any finance that has been pledged will usually be returned to the investors
4. Common mistakes
Crowdfunding may not be right for your business if you have a complicated business concept that people may struggle to understand. You need to be able to explain your business idea in a way that is clear, concise and engaging if you want to attract investors on a crowdfunding website.
5. Finance sources
You can pitch your business idea on a number of crowdfunding websites, including:
This area is growing and developing. Do an online search for crowdfunding platforms relevant to your business sector or business interests.