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.
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:
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.
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.