Crowdfunding, in simple terms, is a way of raising money from lots of people via a website. It started in the US in 1997, and has gradually crossed over to the UK.
How does it work?
Businesses, or individuals who have a project to raise money for register on a crowdfunding website and invite as many people as possible to pledge (invest) small amounts of money.
Crowdfunding is an alternative form of finance – you don’t owe money when people fund your project, so it doesn’t involve traditional banks. You just have to ‘reward’ your funders in some way. So, if your project is to help you publish and promote the launch of a new book, for example, your rewards could be an electronic version of the book, right the way through to a signed copy of the book.
Some crowdfunding websites take a cut of the money that you generate if the project is funded successfully – it’s their way of making some money for the website, which is a business, after all.
There are two other forms of crowdfunding – debt funding and equity crowdfunding – you can find out more detail about these in PremierLine’s free guide to crowdfunding.
“Looking beyond just the traditional means of funding is becoming much more popular to small business owners and crowdfunding has captured the headlines like no other type of alternative funding so far. We think that access to information that help business owners fully understand crowdfunding and decide if it’s right for them before they start investing in the process is essential,” says Ibi Moghraby, Managing Director at Premierline, a UK provider of small business insurance.
Who funds projects?
The term charity begins at home is something that you need to keep at the forefront of your mind when it comes with crowdfunding. When you upload your project on a crowdfunding website, you will need to tell everyone you know about the project. Family, friends, neighbours…everyone. This will help to get the fund off the ground, and will make the project look like it’s worth investing in for other people.
Like any other project, you will need to spread the word – talk about it on your social media accounts, tell media (radio, newspapers, magazines etc), and give out leaflets etc. This will enable you to raise the profile of your project and get strangers to invest in your project.
Where to get started
The best thing to do is to do more research. Have a look at crowdfunding websites – www.crowdfunder.co.uk, kickstarter.co.uk and crowdcube.com to get an idea of what crowdfunding looks like. Be sure to view projects that are similar to what you want to get funded, and get some ideas from them so that you can hit the ground running when you start.