Crowdfunding for Startups

by Startacus Admin

It’s a simple idea - crowdfunding is a means of raising funds from your social networks. You post your business idea to a platform for a finite period to reach a set target and only pay commission if you are successful. In return donors receive non-monetary rewards (donations model), repayment with interest on the loan (debt model) or equity in the company (equity investment model).

Some juicy statistics on crowdfunding

Kickstarter (donations model) took over £2 million for UK projects in its' first month operating in the UK. Globally 80k projects have received funds totaling $429 million.

CrowdCube (equity model) 30 businesses have been funded to a total of £4.4 million. The Average investment was £2500, projects attracted an average of 60 investors for an average of 16% equity

Don’t forget social enterprises - 50 projects on Buzzbnk (donations and debt), the platform for the third sector, have raised over £450K. PeopleFund.It (donations), which merged with Crowdfunder  
(donations) this month, raised over £40k for the Bicycle Academy in 6 days

Don't forget 50-60% of campaigns fail.

Why could crowdfunding be useful to you?

Raising finance

Crowdfunding is a tool for raising startup capital. Access to finance is difficult from banks; the business may be too small for venture capitalists or angels and you've probably exhausted your family's resources.

Testing the product

Crowdfunding is an effective method of validating your product and your strategy for bringing it to market. As your campaign progresses you can tweak the idea, the financials or the plan following real time suggestions or comments from potential investors.

Building a customer base

Your donors or investors have bought into your business and will be keen to see you success. You have a ready made customer base and evangelists.,

Which crowdfunding model - donations, debt or equity

See http://crowdfunduk.wordpress.com/quick-guide-to-key-crowdfunding-platforms/ for a regularly updated list of the UK platforms

Donations

If you have wide social networks who will not only donate (30-40% of your target)but spread the word and act as ambassadors for your campaign. The donations model works well if you have a tangible product, rather than a service, which can be given as a reward. Creative, digital and games are popular with donors.
Key sites are Buzzbnk https://www.buzzbnk.org , PeopleFund.It/Crowdfunder , http://www.peoplefund.it (UK),  Kickstarter http://www.kickstarter.com and IndieGoGo http://www.indiegogo.com (US).

Debt

This will be expensive, even if less than a bank loan, without a track record as startups are a high risk. It may not be a good idea if you are pre-revenue rather than at the expansion stage. The key player is the Funding Circle https://www.fundingcircle.com where loans of a higher than average risk accrue 9%+ interest or Buzzbnk https://www.buzzbnk.org where loans for social enterprises accrue no or low interest.

Equity

A business can only post a request for equity investment with a platform that complies with Financial Services Authority regulations. This is a growing and complex field which is exciting and can give good returns for business and investor alike. This is a good model if you need to raise substantial amounts and have a team with a good track record. Key players are Bank to the Future www.banktothefuture.com/ (which offers donations and equity crowdfunding), CrowdCube http://www.crowdcube.com , SeedRS https://seedrs.com and CrowdMission http://crowdmission.com (for businesses with a social mission). Seminar on crowdfunding for business Manchester 22 January 2013 http:// crowdfundingequity.eventbrite.co.uk

Don't forget crowdfunding is a campaign over a finite time period. You must be proactive and spread the word.

This is a guest post by Anne Strachan from CrowdfundUK. CrowdfundUK runs workshops across the UK on how to run effective crowdfunding campaigns. In the spring she has dates in Bradford, Edinburgh, London, Manchester and Middlesbrough. CrowdfundUK@btinternet.com / CrowdfundUK.wordpress.com / @CrowdfundUK


Crowdfunding your project can help you raise the finance you need. Startacus is helping to make this happen right here. Read all about our own crowdfunding portal!

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Published on: 11th December 2012