Last editedJun 20213 min read
Where can you turn when you need to raise money? Common routes to take include applying for bank loans, finding angel investors, and working with venture capitalists. Crowdfunding is an increasingly popular outlet, but what is crowdfunding and how does it work? We’ll explore the ins and outs of crowdfunding platforms like Kickstarter and GoFundMe in our guide below.
What is crowdfunding?
Crowdfunding describes the process of funding any project or venture by asking a large quantity of people for small quantities of money. Individual investors, friends, family members, and clients might offer contributions to help launch new projects. All these small donations add up to provide a larger source of start-up funding.
In most cases, crowdfunding takes place online where it connects small businesses, non-profits, and start-ups with like-minded individuals. It’s not only used in business but can also provide a source of start-up capital for creative projects or even new inventions. This form of financing may not be traditional, but its promotional tactics are. You’ll need to employ tried and tested marketing tactics like social media posts and pay-per-click advertising to drive traffic to crowdfunding sites.
Traditional funding vs crowdfunding
With traditional funding methods, businesses use security or collateral to access loans from financial institutions. They might also attract wealthy investors and venture capitalists with an existing track record of success.
Crowdfunding, by contrast, doesn’t necessarily rely on collateral or pre-existing success, and it allows businesses to reach out to a much wider base of contributors. The key thing to remember is that when you share information on a crowdfunding platform, you’re required to use the money generated for a prespecified purpose. Traditional business financing can be used for a range of everyday expenses or assets, but crowdfunding is more specific. Your goal may simply be business growth, or it could be research and development of a unique new product.
How does crowdfunding work?
To use crowdfunding platforms, you simply register and create a profile. From there, you’ll create your own fundraising page or campaign. It should tell a story with all the relevant details:
What is your background?
Why are you raising money?
What will the money be used for?
What is your fundraising goal?
There are several different types of crowdfunding setups. Some sites will let you access the money you raise as it comes in, while others will have campaigns with 30-day terms or longer. You can link your banking details to the crowdfunding account for easy transfer.
Top crowdfunding UK platforms
There are dozens of crowdfunding sites to choose from. Some are geared more toward individual creators including artists and musicians, while others are designed to help individuals cover financial emergencies. Here are a few of our crowdfunding UK picks for small businesses and entrepreneurs.
Kickstarter is possibly the most well-known platform out there today, and one of its strengths is its adaptability. It’s equally suited to funding creative projects as it is to new inventions and larger projects. However, this platform isn’t designed for nonprofits or charities. It also can’t be used to purchase business equipment as it’s more project oriented. One final thing to note is that you have to meet your target in order to keep the money, so it’s important to set realistic goals.
If your funding needs are more strictly business oriented, Seedrs could be a good fit. This UK-based crowdfunding platform has already helped start-ups gain access to over £1 billion in investments from individual investors and venture capitalists. Seedrs also helps entrepreneurs with investment advice and legal expertise. Their experts develop your pitch videos and provide marketing support along the way for greater chances of success.
Indiegogo is like Kickstarter in that you can use it to fund projects or new technologies. However, unlike Kickstarter you can also set up your non-profit or charity organisation with a profile. It’s more flexible than Kickstarter when it comes to funding, allowing you to keep the funds raised even if you haven’t met your overall goal.
Patreon is a unique crowdfunding site that works using a subscription model. While the other platforms on this list use one-off campaigns, Patreon allows supporters to make regular contributions each month. The idea is that fans, supporters, and investors can support their favourite artists. It attracts musicians, bands, comic artists, filmmakers, and even podcasters.
Tips for success
You’ll generate more donations by running a well-organised crowdfunding campaign. To give your chances a boost, keep these tips in mind:
Design a project with unique value
Clearly define your mission statement and goals before launch
Create unique video content to hook viewers with targeted marketing
Make sure your campaign tells a story
Give regular updates to keep your audience engaged
With clarity regarding your goals and engagement with your supporters, you can find success with crowdfunding platforms.
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