This year has seen some of the biggest crowdfunding campaign funding rounds, particularly in the areas of blockchain, smart technology and online gaming, with the Pebble 2 smartwatch raising over $1m in an hour – so it’s apt we gush about UK Crowdfunding Week a bit.
With crowdfunding, entrepreneurs attract investors through platforms, with each funder contributing a small amount towards the final target. Entrepreneurs will initially need to write a “pitch”, which will be checked by the platform moderator and then published for the general public to see. The business owner then needs to promote their idea and raise awareness among the “crowd” using social media, email, their own websites and blogs, among other methods.
For those that have faced challenges raising funds for their venture through traditional methods, crowdfunding is proving to be a very popular alternative method of financing, with the market growing 295 per cent to £332m in 2015. Famously, companies such as BrewDog and mobile challenger bank Mondo have turned to crowdfunding to raise funds for business.
The incentives for crowdfunding investors is the chance to be offered a stake in the company or benefits, such as loyalty points or free products. However, UK Crowdfunding Week is also about acknowledging that the venture will get no funding at all if the overall goal is not reached.
For those who are willing to share a stake in their company or incentives with investors, crowdfunding offers numerous benefits:
• Efficient access to funding: Compared to traditional bank loans, it is a fairly quick and simple process that involves writing a pitch, attracting investors and publishing it online – there’s no need to go through credit checks and approvals.
• Creating a platform for the business: Crowdfunding makes it easier for entrepreneurs to engage with people and create a fan base. Raising money via crowdfunding can attract the attention of the press and it therefore has the potential to propel the business forward and get it noticed by more prospective customers and influencers.
Nevertheless, those considering crowdfunding should carefully weigh up the options before going ahead. Much advice has spwaned online thanks to UK Crowdfunding Week, so here are several things to watch out for include:
• Copy-cat competitors: When a campaign goes live on a crowdfunding platform, it becomes public and the concept is therefore put at instant risk of being stolen or adapted by a potential competitor. Entrepreneurs should ensure their patent is approved or currently undergoing approval before sharing with any investors or platforms to circumvent the chances of this happening.
• Regulations: Most crowdfunding platforms are non-regulated which puts the responsibility of safe practice with the investor and entrepreneur.
• Brand reputation: Putting an idea on public display also opens it up to analysis and discussion, which could impact an organisation’s reputation. Carefully selecting funders must therefore be high on the agenda to help ensure a positive image for the brand can be maintained.
Crowdfunding is a great way for startups and entrepreneurs to secure finance who may have been refused via traditional routes in the past. However, when choosing to pursue this path, entrepreneurs must first do their due diligence and be cautious of the steps that need to be taken to make the process as smooth and effective as possible.
Bobby Chadha is a startup mentor at Intuit UK.
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