When most people say crowdfunding, they mean rewards-based crowdfunding. With the rise of Kickstarter and Indiegogo into mainstream media, this is one of the most familiar crowdfunding types for most people.
You create a pitch for your idea/product and upload it to a platform for all the world to see. In exchange for giving you money, backers will expect rewards related to your projects. Your backers are effectively your first customers.
Anyone can create a crowdfunding project. It’s best used for newcomers, product launches and when seeking funds for under 50k.
Anyone. Most platforms accept a global audience, support global payment and, as long as the Project Creators are comfortable with sending the rewards overseas, backing a project is open to anyone.
Kickstarter and Indiegogo are the largest and cater to a global, well-established audience. Crowdfunder is the UK’s largest crowdfunding platform and they also support donations. Based in the UK, LEOcrowd leverages a global community of entrepreneurs to back the platform’s projects.
Donation based crowdfunding is similar to rewards crowdfunding in most aspects, except project backers don’t get rewards. Most projects are charities and fundraisers for a specific cause although the previous years have seen the rise of crowdfunding for personal reasons, to pay for student debts or even paying off a mortgage.
You create your project and upload it to the crowdfunding platform. No rewards are necessary, and no exchanges will be made between backer and Project Creator.
Best used for charities and fundraisers with a personal touch. Think of ‘I’m running a 5k marathon for the children in Africa and donating the funds raised to a charity’ rather than ‘I’m raising funds for African children’.
As long as the platform is not a niche, local platform, then anyone.
GoFundMe is the largest donation based crowdfunding platform. Crowdrise promotes all kinds of inspiring causes. Spacehive supports initiatives within UK public and community spaces. Most rewards-based platforms accept donations as well, you just have to set up your campaign as such.
Equity Crowdfunding is where we stop talking about backers and instead, start talking about investors. With equity crowdfunding you are giving up a share of your company or profits to a large number of investors. Almost like having one angel investor owning 10%, only now you have 1,000 people who own that same 10% share.
You put together your business plan and upload it to your preferred equity crowdfunding platform. Most platforms have their own rules and criteria for accepting projects so make sure you do your research accordingly. Expect that your pitch will have to be more serious than a funny rewards-based campaign. For tips on how to create a fantastic pitch, head over to our ’10 Tips for a Killer Pitch’ article.
Startups and businesses looking to raise at least £25k. Minimum targets are set separately by each platform, just make sure you know the value of your own company – wanting to give 10% for £100k means your company would be worth £1 million. Is that really the case?
People who have reached the legal age limit can donate the minimum investment - sometimes as little as £10. Most platforms only accept investments from those in the same geographical/monetary area as the platform is registered in.
Seedrs has a greater focus on listing entrepreneurial firms that focus on helping entrepreneurs gain their first seed capital. They are the largest such platform in the UK and work with investors and investments from 48 countries. Crowdcube is one of the longest-established UK sites providing a variety of firms with the opportunity to pitch for funding. Syndicate Room lists onlycompanies already backed by professional ‘business angels,’ who invest their own money and take an active role in evaluating the strength of the deal. Crowd For Angels works with a broad range of companies and investors and accepts cryptocurrency as payment.
Peer-to-peer lending facilitates the lending process between borrowers and lenders. Think of it like borrowing from a bank… except you’re borrowing from 100 people. By cutting out the costs of the traditional high street loan, this type of lending offers better margins for lenders and lower than average rates for borrowers.
First of all, you need to find your preferred lending platform. Many have different criteria for loans so make sure you do your due-diligence and find out what you will need to borrow the cash. But the application process itself is very easy. You will need to complete an application online; you will get a response from the platform and most will have the money in your bank account in 24 hours.
Small businesses but some platforms give out personal loans and others specialise in property lending.
Anyone with enough cash flow. You can lend as much as you like to businesses and earn stable returns.
Zopa is the world’s first and the UK’s largest peer-to-peer lender, having launched in 2005. Based in the London, Funding Circle UK is a leading marketplace for business loans in the UK, US, Germany, Spain and the Netherlands. LendInvest is the UK’s first peer-to-peer lending platform specifically for residential and commercial mortgages. Rebuilding Society has supported small businesses for over 5 years now.
So which type of crowdfunding is best suited to you? The simple answer is, it depends on your business goals.
Do you have a new product to launch and need money to get manufacturing started? You should try rewards crowdfunding. Besides covering your manufacturing and shipping costs, you will have gained your first customers, received valuable feedback throughout the campaign and will have raised awareness about your product.
Want to support a cause you believe in or your local school opening a new library? Donation crowdfunding is the way to go.
Do you have a business specialising in IT and need 80k to start growing? I’d go with equity crowdfunding if I were you – you can raise more money than through regular rewards-crowdfunding and you might also get an investor with experience and knowledge in your industry who can contribute information to assist your company’s growth.
Looking for 50k to launch an innovative product but don’t want to give up shares? Create the hype and go for rewards-crowdfunding. You can even split the project into two campaigns; if you go over your funding target and reach your goal on the first day, then you can leverage that momentum.
It all depends on you – what your business goals are and how much work you will put into launching and growing your idea, your product, your business. If used right, crowdfunding can be a great tool in your business plan.
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