Small and medium-sized enterprises (SMEs) in particular often find it difficult to raise the working capital they need. The problems are compounded by the general reluctance of traditional banks to advance such business loans.
Crowdfunding has helped to fill that vacuum. Instead of asking one main lender to advance the required funds, crowdfunding offers a way of inviting a large number of individuals and organisations to each contribute small amounts. The required funding is therefore raised through that pool of contributors – through crowdfunding.
The different types of crowdfunding
In a consultation paper released in July 2018, the Financial Conduct Authority (FCA) noted that crowdfunding is often an important, alternative source of finance for businesses and individuals.
As an alternative source of finance, which avoids any bank or other financial institution as an intermediary, crowdfunding is theoretically a cheaper way for businesses to raise the funds they need and for the individuals concerned to receive a more attractive rate of return.
The FCA also draws one of the fundamental distinctions between different kinds of crowdfunding:
- through this means, individuals have an opportunity of investing in companies by purchasing shares or bonds and participating in the returns generated by those investments – for that reason it is also sometimes called equity crowdfunding; and
- Just as it says, this is a means by which businesses raise finance from a collection of individuals – also known as peer-to-peer lenders – who provide a repayable loan and receive repayment together with an agreed rate of interest.
These two forms of crowdfunding have been received with wide appeal in the UK. A story in the Financial Times from September 2018, for example, mentioned the example of one of the leading crowdfunding platforms Funding Circle – said to be valued at £1.5 billion.
As of the 8th of August 2019, Funding Circle reported that it currently has some £3.54 billion of funds under its management through its crowdfunding platform.
Other types of crowdfunding
In addition to debt-based crowdfunding, or peer-to-peer lending, and investment-based crowdfunding – which are both regulated by the FCA – there are two other principal types, which are not regulated by the FCA:
- in this variation of the concept, there is no immediate financial pay-out, but contributors may be “rewarded” with gifts – such as concert, theatre or cinema tickets;
- the value or number of gifts issued may be proportional to the size of the donation made;
- it was one of the first instances of crowdfunding, where a rock band wanted to raised funds for a forthcoming tour and offered free tickets to their concerts for those who donated;
- rewards crowdfunding continues to be used quite widely for such artistic endeavours;
- crowdfunding is also used by many charities as a way of encouraging and receiving donations to its cause or causes;
- raising donations in this way helps to build a community spirit online and is used not only by charities but also by individuals who are appealing for financial help with particular personal issues or projects.
In addition to its commercial appeal to businesses, therefore, crowdfunding is also a valuable source of funding for charitable and individual projects.
Equity Crowdfunding Masterclass
Nathan Rose, Author of Equity Crowdfunding : The Complete Guide For Startups And Growing Companies: has launched his online equity crowdfunding masterclass. This is online training class you can take in your own time and use to help build a successful crowdfunding campaign to unlock the finance you need to build your product. The masterclass covers 7 main aspects of running and completing a successful crowdfunding project.
- Crowd building
- Authority Outreach
- Platforms Selection
- Campaign Prep
- During the camping
- After the campaign
The masterclass has over 40 videos to ensure you are best equipped to run a crowdfunding campaign. Currently the masterclass has $60 off for new students. While priced in dollars, the course in suitable for anyone in any location. It also provides interviews with those that have raised monies before and will share their tips too.
If you are looking at equity crowdfunding, this is the best investment you can make.