Crowdfunding
I have been researching in to this subject, I am not sure how successful it would be for larger ventures, I am watching one very closely at present, but it looks like it is helping to get small "social" ventures off the ground.
With the emergence in recent years of a range of new funding sources we asked Professor Jonathan Levie, Director of Knowledge Exchange at the Hunter Centre for Entrepreneurship, University of Strathclyde, for a brief guide to one of the most talked about platforms – crowdfunding.
“Crowdfunding is a new and very exciting form of potential funding for young ventures. If you have an idea or a product or service which would appeal to a consumer market, you might be able to get the 'crowd', i.e. anyone with internet access, to fund your startup costs. For more established ventures, peer-to-peer business lending is also a possibility. Here is a brief introduction to crowdfunding.
“There are four basic types of crowdfunding: those based on donations, rewards, debt and equity. If your venture is not a charity, you may have to do more than ask for donations! If you want to avoid, or cannot get, debt or equity funding from professional lenders or investors, then reward-based crowdfunding may be an attractive alternative, particularly for ventures with consumer products or services.
“Say you are a film entrepreneur. You might offer to include a stranger in the credits if you pledge £100, or send them free passes to a premiere, or send them a ‘free’ or ‘reduced price’ copy of the finished film. Really, the only limit to these rewards is your imagination.
“Trawl through kickstarter.com or our own Scottish-born crowdfunding site Bloomvc.com and you will quickly get the idea. Crowdfunding can also be a way of raising funds from family and friends without the embarrassment of having to ask in person. Typically, the crowdfunding site keeps a small percentage of the money raised and you don’t get anything unless your target funding is met or exceeded.
“Peer-to-peer lending is a different kettle of fish. Here, you have an obligation to repay the funds you raise plus interest. Examples of peer-to-peer business lending platforms in the UK are Funding Circle and ThinCats. You have to be trading for several years before being able to request a loan from individual lenders via these platforms.
“Equity-based crowdfunding is more controversial, because offering shares for sale to the general public is a 'financial promotion' activity that is regulated by the Financial Services Authority. You can’t just stick an offer to subscribe on your website: that’s illegal. But offering shares for sale to the general public can be done legally, if you are careful and thorough. Check out how BrewDog, a Scottish pioneer of equity-based crowdfunding, did it independently, with help from professional advisers. Or investigate regulated platforms like Crowdcube.com.
“A final thought: crowdfunding is no silver bullet and can take a lot of hard work to pull off, so do your research on it and on other funding options before throwing yourself on the mercy of the crowd.”
Base article in Business Gateway Scotland
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