Crowdfunding

Crowdfunding is a relatively new way of gaining capital to get started in business. Crowdfunding can be an interesting and rewarding alternative to borrowing, business loans and bootstrapping.

Get started with your crowdfunding

From entrepreneurs and inventors looking to bring their visions to life and to market, through to larger and more established companies, crowdfunding can offer a fantastic opportunity to raise the finance needed to start up a business or to take a project to the next stage.

The ins and outs of crowdfunding

Crowdfunding does what it says on the tin! Allowing you to pitch your business vision and the amount you need to bring that into being to the crowd – the public at large who may be interested enough to offer you a deal for all or part of the money you need.

In order to do this, your business, or the project you pitch needs to have a visible end result. So, for example, this may mean that you’re pitching for the funding needed to bring your invention to manufacture.

If there are people out there who like your idea, they’ll pledge to donate towards your goal.

It’s important to note though, that investors may only pledge a small amount of the finance you need. So if your pitch doesn’t result in raising enough pledges to reach your present financial goal, their money won’t be debited and you’ll be no further forward.

By the same token, the charges that the crowdfunding platform you’ve chosen will only be taken if your project raises the funds you need.

Crowdfunding platforms

There is a multitude of crowdfunding sites to choose from in the UK, each one with its own merits and advantages. Some specialise in certain industries or certain types of products, while some specialise in non profits.

Along with US-based Kickstarter, well-known platforms include Indiegogo and Rockethub, as well as UK based organisations such as Crowdcube and Seedrs.com.

Kickstarter is probably the best known site globally and was launched in the UK in Autumn 2012. Aimed at creative projects, the site raised over £2m in the first month here. Kickstarter charge a 5% fee on successful completion.

International site Indiegogo was one of the first sites to offer crowdfunding. With their fixed funding Indiegogo charge a 4% fee on successfully reaching your goal.

Launched in 2010, Rockethub targets those in art, science, business, and social good projects. Rockethub charges 4% commission fee and a 4% credit card handling fee if you reach your goal, and 8% commission and a 4% credit card handling fee if you don’t.

UK based Crowdcube is well suited to start-up businesses that need significant investment to get started. Crowdcube charges a 5% fee on successful completion.

Seedrs, based in London, was set up in 2012 and has a greater focus on entrepreneurial firms in need of first seed capital. Seedrs charges 7.5% of the money successfully raised.

Selecting a crowdfunding platform

With each crowdfunding site offering different and distinct benefits, it’s important to research and find the best one for your needs.

First think about what your business is all about, and what activity you’re looking to have funded. Then check out each site’s guidelines to make sure you have a fit for their community.

Your selection will also depend upon which stage your business is at.

Take a look at the other ventures and projects that are currently on the site, as well as those who have successfully gained funding. And find out who invests on each crowdfunding site too, and how they operate.

Registering your business and crowdfunding

Adding your business onto a crowdfunding site is fairly easy, and apart from the fees mentioned above, listing is generally free. When you fill out your listing, add as much information as possible. Make it an exciting read – investors are more likely to offer to fund if they get a buzz from your business.

Registering with Companies House before adding it to a crowdfunding site ensures potential investors know you mean business. The process is quick and easy and can take as little as three hours with The Formations Company.

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