Crowdfunding is a simple concept to understand – and certainly the opportunities it offers to successful ventures are significant – but how do you know what type of Crowdfunding is a good source of alternative funding for your business, not-for-profit or community group?
This blog explains the different types of crowdfunding, gives links to explainer videos from the market-leading crowdfunding platforms and provides some useful questions for consideration before you decide to pitch on a crowdfunding platform.
There are three main types of Crowdfunding platform as follows:
- Equity – Investors (the crowd) buy shares in your venture
- Crowdcube: https://www.youtube.com/watch?v=tVvfE7ZqEyc
- Seedrs: https://www.youtube.com/watch?v=Depu0ZcCNIg
- Syndicate Room: https://youtu.be/-w8k0kuN_aE
- Loan – Lenders (the crowd) earn interest through a loan to your business
- Funding Circle: https://www.youtube.com/watch?v=w2zuiwQE1vU
- RateSetter: https://www.youtube.com/watch?v=gxDhy_k-agc
- Reward – Advocates (the crowd) earn rewards by giving money to your project
- Indiegogo: https://www.youtube.com/watch?v=V1ArOjOZuUo
- Kickstarter: https://www.youtube.com/watch?v=1KTvNF68LSw
It might be helpful to see some statistics to help understand crowdfunding and these different platforms in more detail:
- Crowdcube is the market leading equity crowdfunding platform and on the day of writing, they claim to have invested £689,234,678 in 883 successful raises from 747,807 register investors. That would mean an average equity investment of £780,560 per raise and an average investment per investor of £922.
- Funding Circle, the market leading crowdlending platform, has now lent 49,000 businesses in the UK £5bn according to the website. That is an average loan of £102,000 per business, although a business can borrow from £10,000 to £500,000. Interest rates start from 1.9%, although our experience would suggest setting expectations closer to 6% – 8%.
- IndieGoGo, the market leading rewards-based crowdfunding platform, launch 19,000 new campaigns every month across their global network of 235 countries & territories. The platform attracts over 10million visits per month and it might be of interest to know that 47% of campaigns that exceed their funding goals are run by women.
Here are three questions that are worth considering before you jump into developing a crowdfunding pitch and going live:
- What type of funding are you seeking? Equity Investment will require a different pitch to a loan or reward pitch. Watch the videos above and read the help documents provided by the platforms and browse the live funding pitches to see how your venture compares. Before you decide on a platform – decide the type of funding you are seeking.
- Is crowdfunding the best option? Consider the alternatives – grants, angel investment, existing revenues, partnering, etc. Could it be that crowdfunding conflicts with your longer-term funding plan? For example, the majority of equity-based crowdfunding pitches tend to overvalue their business which is likely to lead to consequences in further funding rounds (Series A).
- Are you ready to go public with your venture? Crowd investors are like you – inquisitive – there will be questions and lots of them before the funding is secured. Do you have the time and patience to interact with your multiple backers? On the up-side, this process creates a network of advocates that will further your venture when they choose to invest.
We have experience of developing pitches and securing funding from Crowdfunding Platforms. If you would like our opinion on your venture’s chance of success, please complete our information request form here and we will be in touch to discuss.
The regulations that hampered the scaling of crowdfunding on an international stage are being relaxed and it is safe to say it is a form of alternative business funding that is here to stay. The market is maturing (watch and see if the leading equity platforms move towards an asset management model in the near future) and the numbers are impressive. Crucially, this is a viable funding option for entrepreneurial teams looking to act on global challenges because there are like-minded investors involved in crowdfunding.
Feedback and Questions
We would welcome any feedback from you and would be happy to answer general questions about crowdfunding.
Related Content and Comments
Please share this post with other members of your team or with your wider network. Here are some related articles and videos:
- Beauhurst have the definitive data on equity investment and write some interesting blogs with partners such as Syndicate Room:
- Here is an update on EU regulations to make crowdfunding more accessible: