It’s a buzzword that’s been hanging around for several years now, though continues to go largely unexplored by most would-be business owners.
Valued at somewhere in the region of £9 billion annually, the total global crowdfunding market is huge. Not to mention, credited with giving rise to some of the most important and successful products and services of recent years.
In terms of how it works, the existing or prospective company essentially decides what it is willing to offer, in exchange for the financial assistance of investors. Typically some kind of stake in the final business, in return for the funds the investor is willing to hand over.
In a working example, an entrepreneur may have an idea for a new kind of kitchen appliance, but doesn’t have the money required to build a working prototype and pitch it to a major manufacturer.
They need £50,000 to make this happen and open their business idea up to investors. Those who invest may be offered a percentage stake in the revenues of the business should it prove successful, or perhaps shares in the business.
The entrepreneur may allow thousands of small-time investors to sign up for as little as £5, or establish a minimum investment amount of £1,000 or any sum deemed appropriate.
Crowdfunding has the potential to be surprisingly effective. On an annual basis, it is estimated that somewhere between 20% and 30% of businesses offering listings on crowdfunding websites managed to achieve their capital-raising goals.
Where crowdfunding fails to succeed, it is more often than not a case of poor pitches, poor concepts in general or requests for sums of money that just aren’t realistic.
One of the biggest benefits of crowdfunding is the way in which investors get involved entirely at their own risk. Just as long as you keep up your end of the bargain with whatever it is you intend to do, you aren’t usually liable if things go wrong.
You can’t just run away with the money, but if the business idea fails, you won’t find yourself facing heavy financial and legal consequences.
By contrast, the downside of crowdfunding is the way in which it tends to be very time-consuming. Preparing a successful pitch can take a long time in its own right – getting the message out and piquing the interests of investors can take even longer. Weeks, months, even years in some cases – it’s rarely a viable option for rapid collection of funds.
When time is a factor, alternative financial solutions like bridging finance can be useful for obtaining just about any sum of cash in a matter of days. Use companies that are able to offer the best bridging loan rates to get the best deal. Compare a few of the mainstream bridging brokers and make a comparison.
Still, if you’re not in a great hurry, need a relatively large sum of cash and believe your idea will appeal to investors, there’s technically nothing to lose by giving crowdfunding a try. Even if the venture comes to nothing, it usually won’t cost you anything to find out…aside from the time and effort you’ll need to invest in your pitch.