WHERE LOCAL BUSINESS GROWS

Crowd funding



Overview
 

Crowd funding - also known as crowd financing or crowd sourced capital - 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. It has become increasingly popular in the form of online crowd funding.

Depending on your circumstances, crowd funding can be an option for businesses that have struggled to raise finance through loans or other conventional funding methods. You should make sure your idea is protected before putting it on a crowd funding website.

The process
 

You can submit a pitch to a crowd funding 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 crowd funding 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 crowd funding 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

Pros and cons
 

Pros

  • crowd funding 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
Cons
  • if you haven’t protected your business idea with a patent or copyright, someone may see it on a crowd funding 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

Common mistakes
 

Crowd funding 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 crowd funding website.

Funding sources
 

You can pitch your business idea on a number of crowd funding websites. Different types of crowd funding models are available including: equity, debt and reward.
Find a directory of crowd funding sources on the CrowdingIn website.

Equity crowd funding


Money is exchanged for shares, or a stake in the business, project or venture.

  • ShareIn
  • Crowdcube
  • Seedrs
  • InvestingZone
Debt crowd funding
With debt crowd funding (also called peer-to-peer lending), investors will look to receive their money back with interest.
  • Assetz SME Capital
  • Funding Circle
Reward crowd funding

With reward crowd funding investors tend to have a social or personal motivation for investing. Returns such as tickets, acknowledgments and gifts are usually offered to investors.
  • Bloom
  • Crowd funder
  • Kickstarter
  • Sponsume

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