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What is crowdfunding?

posted Apr 3, 2013, 4:47 PM by Andrew Manzo

Crowdfunding is an alternative method of raising finance for a business, project or idea.

Unlike traditional forms of financing, in which one investor typically takes a larger stake in a project, with crowdfunding you can attract a ‘crowd’ of people – each of whom takes a small stake, and contributes towards an online funding target. The rise of crowdfunding platforms such as Kickstarter in the US and Crowdcube in the UK have provided both projects and investors with the first real, organised and scalable way of interacting.

Crowdfunding also provides projects with a powerful way of building communities and interest, whether it be in a start-up business idea, a new film or a charitable scheme. These early stage supporters can provide invaluable confirmation of the merits of an idea and save projects significant time and cost that might be involved with more traditional routes to finance.

Broadly speaking there are three types of crowdfunding platform:

Reward based – sites such as Kickstarter enable projects to raise funds in return for rewards. For example an author might offer backers a signed copy of his book, access to a launch event or the chance to be a named character, depending on the level of support that they offer.

Peer to Peer Lending or Crowdloans: sites such as FundingCircle connect projects direct to a crowd of investors who are willing to lend money to a pool of businesses or individuals.

Equity based: sites such as Crowdcube enable businesses to raise funds from the crowd in return for giving up equity in their business.

Choosing the right platform is a critical part of the crowdfunding process and will have a huge effect on whether your campaign is a success, and so it is something that I will cover in detail in the rest of the site.

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