MoneyMagpie

Sep 18

Crowdfunding: a guide to getting the funds you need

We think crowdfunding is a great way for getting the funds you need to support your small start-up idea or turn your artistic dreams into a reality and it’s a great alternative to taking out a loan. Take a look at our guide to crowdfunding and see how it can help you launch your potential business idea or creative project.

 

What is crowdfunding?

crowd funding

Crowdfunding is an alternative method to getting the funds you need (loans) and is usually used by start-ups, entrepreneurs or artistic individuals looking for money to fund their ideas. In simple terms, crowdfunding means getting the crowd to fund your project.

The idea of crowdfunding is for someone with an idea to ask businesses or members of the general public like you for an investment to help them reach a target needed to fund their project. In turn the people asking for the money can offer you something like a small part in their film, a share of their business or a free copy of their book.

Crowdfunding is an alternative to bank lending and can work out well if you have the time and patience to convince others your idea is a good, investable plan.

 

Types of crowdfunding

1. Reward crowdfunding

This is the most popular type of crowdfunding. It involves offering investors rewards and incentives to fund your idea.

2. Equity crowdfunding

This type involves selling a small percentage of your business or offering a stake in part of your company as part of a long-term investment.

3. Debt crowdfunding

This is a new type of crowdfunding. This type of investment involves asking for money in exchange for interest in the future or promise of financial return.

 

Who can use crowdfunding?

Anyone can use crowdfunding and the majority of crowdfunding websites don’t charge you for uploading your pitch. However, most websites will take approximately 5-7% commission if you reach your full target. If you fail to meet your full target, you won’t pay a penny – so what do you have to lose?

As mentioned above most websites will ask you to provide an incentive to encourage people to invest in your idea. In the case of larger investments you’ll be encouraged to offer a small percentage of the business to your investor as their investment will be a higher risk.

Crowdfunding can be used for an array of creative, or business-led ideas. Some of the most popular projects and uses are:

  • Business start-ups
  • Film projects
  • Book publishing
  • Entrepreneurs
  • Charity and creating awareness of campaigns
  • Scientific research
  • Basically anything that needs financial support

Not all crowdfunding platforms will be suitable for your plan or business idea, so make sure you do some research before you upload your pitch.

 

How to get crowdfunding

Crowdfunding

All crowdfunding websites vary, but the general way it works is:

  • Create a profile
  • Write a short summary of your project
  • State how much funding you need and set a time limit to achieve it
  • Calculate the costs of incentives into the total you’re asking for
  • Most websites have an all-or-nothing policy. This means if you fail to reach your target amount you’ll receive nothing. However, if you raise more than you ask for then you’ll get the lot
  • If you’re successful in raising the money you need you MUST complete the project promised as this is a business contract. If you fail to do so you’ll have to pay the investors back.

 

Success stories

Despite being a relatively new concept many people have created successful projects and business start-ups through crowdfunding sites. Here are some success stories.

Brew Dog

The brewer and bar chain Brew Dog used a crowdfunding site in an attempt to expand their business. They offered 42,000 shares at £95 each and also offered investors a lifetime discount at the company’s bars and online shop.

So far the company have raised over £3million in funds for their £4 million goal.

Veronica Mars

Popular TV show Veronica Mars ended in 2007 due to a fall in ratings. Five years after the show’s cancellation actress Kristen Bell launched a bid to raise funds for a movie of the series.

Less than 10 hours after the pitch was posted, the campaign managed to raise the full $2 million needed to produce the movie.

Ebbsfleet United FC

In 2008, Ebbsfleet United Football Club was bought by approximately 26,000 people each paying  a share of £35.

The club is now controlled and managed by the members who bought shares and are even involved in taking decisions regarding transfers and team selections.

Community project

Jessica Prendergrast, director at Minehead Eye, used crowdfunding to raise £5,000 towards a £25,000 rock-climbing area for its 1,000 members. As an added incentive, they offered anyone who donated £10 a free bouldering session for two when the room was built, and a party for them and 10 friends if they donated £100.

The community project raised donations from more than 100 individuals, as well as from a range of local businesses and successfully reached their target.

 

Crowdfunding sites in the UK

Crowdfunding websites in the UK authorized by the Financial Conduct Authority (FCA).

sedresSeedrs is an equity crowdfunding platform for discovering and investing in start-ups based in the UK. The company takes a one-off fee of 7.5% from successfully funded start-ups.

 

Kickstarter_LogoKickstarter is a creative-based crowdfunding website, which means people cannot invest in projects to make money. Instead they can back projects in exchange for a copy of a DVD, a small part as an extra, meetings with an author, director or actor and even something as little as a thank-you note. Kickstarter funds many artistic projects including music, films, video games and magazines.

 

Crowdcube_logoCrowdcube is a crowdfunding platform that offers people equity in unlisted UK registered businesses in exchange for investments. Crowdcube has an all-or-nothing policy which means you must reach your full target to receive funding from investors. A 5% commission is charged on a successful funding campaign.

 

downloadBankToTheFuture is a crowdfunding platform for small businesses in the UK allowing anybody to invest in private companies with a minimum investment of £10. BankToTheFuture is supported by Richard Branson and offers crowd investing, crowdfunding and crowdloans.

 

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WHAT DO YOU THINK?

2 thoughts on Crowdfunding: a guide to getting the funds you need

  1. I found this post really informative as well as interesting! Crowdfunding is such an intriguing innovation to businesses and business models, especially because of its emphasis on collective generosity and collaboration. Great article.

    Reply
    1. Thanks Harriet. Glad you like the piece. We think crowdfunding is an intriguing innovation to businesses too. You really need time, patience and passion to convince others your idea is a good and investable.

      Reply

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