What is Crowdfunding?


Crowdfunding (also known as crowd financing or crowd sourced capital) is where a number of people each invest, lend or contribute small amounts of money to your business or idea. This money is combined to help you reach your funding goal. Each individual that backs your idea will usually receive rewards or financial gain in return.

Crowdfunding usually takes place through a website. The platform will manage any online payments, and may often offer services such a video hosting, social networking, and enabling contact with contributors.

This guide explains the different types of crowdfunding, examines the benefits and risks, and gives advice on whether this type of finance could be right for your business. It highlights things to consider when choosing a crowdfunding platform, and where to find more information and support.

Is crowdfunding right for your business?

Crowdfunding can be a way of raising finance relatively quickly, often without upfront fees. It provides an alternative to funding from conventional means (eg a bank loan).

To raise funding you will typically have to showcase your idea to potential investors through a crowdfunding website. An investor will select what they want to get in return for providing a specific amount of money. This is usually based on what you decide to offer – this could be a stake in the company, a percentage of your profit or even rewards, such as gifts.

Crowdfunding can help you to generate funds for a project, but can also allow a business tomarket test a product that may only be in planning phase. This process of raising this type of finance may also help to promote a business or product before it has launched.

Investors using crowdfunding will often look for:

  • evidence of a tested idea that has the potential for future growth and development
  • an idea belonging to a high growth sector (eg technology), or an industry that the funder has a personal interest in
  • a niche idea that has an established audience in the marketplace

To find out more about crowd funding download Nesta’s report on understanding alternative finance (PDF, 4MB)

Read more: nibusinessinfo.co.uk