How Crowd Funding is Helping Small Businesses Raise Finance

Crowd funding may be a relatively new concept to many, and has gained a lot of attention during the financial crisis due to traditional sources of finances becoming restricted. That said, crowd funding has been around since the late 90s, and now involves hundreds of crowd funding websites that are growing day by day.

In this guide we look at how exactly crowd funding is helping small businesses in their quest to raise the necessary finance to get the growth they deserve.

Crowd funding

How crowd funding works

Many of you may not be familiar with how crowd funding works, so here’s a brief run through. Start up or small businesses launch a fundraising project on a crowd funding website where investors are then able to purchase either equity or debt. Following a set amount of money being invested, the project proceeds and, if the business succeeds, the shares that have been purchased can either be held on to or sold on for a profit.

The history of crowd funding

As mentioned, crowd funding has been around since the late 90s, however it really took off in 2009, when Kickstarter entered the market and provided the first ever mass crowd funding platform. Since its conception, Kickstarter has funded over $450 million worth of projects which have involved everything from Oscar nominated films to best selling computer games.

However Kickstarter follows a model known as the ‘tin-cup’, which means that those that contribute receive a gift such as a T-Shirt or a listing in a film or game’s credits, as opposed to the more significant of investment sites where shares are sold.

How crowd funding can help your small business

So if you’re considering crowd funding for your business you may well be wondering where to start. Well your initial task is to find the correct platform. Crowd funding websites differ greatly in terms of the businesses that they feature; some may specialise solely in creative businesses, where as others may focus on IT.

You will also need to consider what it is that you’re willing to exchange for funding; if you’re looking to raise a large amount of capital, than providing shares may be the only way to go. Conversely, for smaller or creative projects, you may have the option of providing a gift in exchange for funding.

Top tips for success on crow funding sites

These following tips from Brighton Accountancy firm will help you in your crowd funding quest:

Ensure that your proposal is as detailed (and as exciting) as possible: Crowd funding sites are literally flooded with hundreds of projects all vying for the attention of investors, so be sure to liven up your writing and consider providing a pitch video.

Do your research: Make sure that you research your market prior to posting a project. Are there already existing projects with similar offerings? If so, can you improve on them?

Plan ahead: Many projects fail prior to reaching the necessary funding levels because the business has focussed solely on reaching their funding goals. Be sure to think about how you’ll move ahead with your newly found finances.