Crowdfunding is increasingly seen as the first point of call for entrepreneurs, but raising money is not straight forward and there is no guarantee of success. Entrepreneurs/ companies looking to raise money should treat crowdfunding as potentially one of many sources and research all of the options to make sure they make the right choice.
If crowdfunding is for you there are different types of crowdfunding to choose from. Each offers different benefits and each can work in conjunction with other sources of finance. The main types of crowdfunding are:
- Pledge or Project Funding: This is funding for projects, essentially pre-selling products to allow the project to create them to progress (best known sites are www.Kickstarter.com and www.IndieGoGo.com ).
- Equity Funding – Essentially a business sells shares in return for cash (example UK site www.crowdcube.com ).
- Straight Debt Funding - Peer to peer lending, applicants will be pre-screened and between 85% and 99% fail, once passed the loan requested is posted online for investors to review. (example UK site www.FundingCircle.com ).
- Specialist Debt Funding – Lending against assets or even invoices (example UK site www.marketinvoice.com ).
- Social Enterprise Funding - These focus on charities and for profit companies with defined social mission, often the reward for donors is doing something good rather than a financial return. (example sites UK www.crowdmission.com or US www.Kiva.org ).
- Donation Funding: Used for charity fundraising , with fees typically less than 5% (example UK site www.justgiving.com )
A new trend is the growth of specialist crowdfunding sites specialising in specific sectors e.g. green tech or apps etc. NOTE: all sites charge fees for fund raising projects.