What is CrowdFunding?

Sillbury Hill

CrowdFunding is a new form of democratic finance that is raising hundreds of millions in the UK every year for businesses. This has now become a huge trend benefitting any person, startup or business who wish to come to terms with what CrowdFunding is all about.

CrowdFunding is an old concept given new life with the arrival of the internet. Websites have sprung up all around the world helping to collect lots of small amounts from hundreds of people for many different types of projects.

Deloitte‘s have claimed that over $5 billion was raised worldwide during 2013 and that this will more than double for 2014.

This means that anybody, startup or business can now raise money for a project or an idea using one of these websites.

These websites are normally divided into four main types. Choosing the right platform is critical to your success.

There are more but the four main types of crowdfunding are:

1. Donation based CrowdFunding is where people donate and do not expect anything in return. Just Giving is a good UK example.

2. Rewards based CrowdFunding is where people will pledge an amount but expect a product or service in return. Kickstarter and Indiegogo are good examples.

3. Equity based CrowdFunding is where you sell off shares in your business to the crowd. Just like Dragons Den but instead of one or two investors, you give a share of your business to hundreds of people. CrowdCube, Seedrs and Syndicate Room are UK examples.

4. Debt or Peer to Peer Lending is where people with money will lend you money at an agreed interest rate and repayment period i.e. taking the high street bank out of the equation. Funding Circle and Rebuilding Soceity are two examples.

There are now over 170 CrowdFunding websites in the UK that have been formed over the last four years. All of them work differently but generally fall into one of the above categories.

You will also find specific CrowdFunding websites such as Unbound.com for writers, CrowdHouse.com for real estate and many more.

Generally all of them take a commission from what is raised and you will need to take bank charges into account as well.

CrowdFunding is also for those who wish to invest their money into one of the above models. CrowdCube.com for example has over 70 000 investors who have signed up to fund projects. Government and County Councils have also invested tens of millions into these platforms during 2013.

CrowdFunding is not for the faint hearted. You will need to set aside around 120 days to grow and manage your campaign. There are many success factors that must come together in order for your campaign to be successful. Not everybody succeeds at CrowdFunding.

Recently at the end of 2013 one company in the UK raised £1.9 million using CrowdFunding to build 1000 sustainable properties each year starting in 2018. Will you be the next?