Business and new launches are increasingly turning to different funding sources as banks tighten their purse strings, but do you understand the various options open to you? Here we look at one option, which is called crowdfunding.
In basic terms a crowd of people contribute towards an online funding target in return for a small stake in the business idea. Where one large investment may have proved too risky, in this model many smaller investors will hopefully be more willing to put in a lower investment eventually equalling the sum required.
There are things to be aware of such as the commission (around 5%) that you will need to pay the crowdfunding website once your target is met, and to attract investors you may be encouraged to offer incentives such as discounts or equity in the business. However, think about this. By having investors, especially those with a stake in your business, you will have a support network in place who will want to promote the business, possibly use the product or service and perhaps offer you their expertise. In addition, reaching the target not only gives you the required investment, but sends out a message that you have a good business idea which, combined with the fact you received your investment, makes a great news story!
