Business

Crowdfunding – An Alternative Way To Start Start-ups?

Crowdfunding – An Alternative Way To Start Start-ups? 1 2 3

One of the main benefits of crowdfunding is obviously that it gives self-starters and entrepreneurs a chance to secure the initial funding they may have struggled to find elsewhere. The nature of getting lots of small amounts from many sponsors makes this kind of investment less scary, as people don’t necessarily have to commit to large amounts, and people genuinely enjoy having the ability to invest their money into the projects they believe in. It also means that you are automatically building up a loyal base of support, particularly in the equity based models, and it’s an easy way for friends and family to show their support. Achieving funding this way is also a great way to promote your business, to local news but also to future investors and customers, as it is proof that you have the support of the public behind you. Another incentive is that as of 6 April 2012, investors pledging between £500 and £100,000 in a qualifying start-up will benefit from 50% tax relief, under the Seed Enterprise Investment Scheme, as announced by the government in 2011.

Of course, it’s not a guaranteed means of success, and quite a high number of pitches fail to secure the total amount of funding they initially asked for. By having to outline your business at such an early stage, there is also the risk that someone will copy your idea before it comes to fruition, although the platforms are constantly developing and some now offer businesses relative invisibility until potential investors have gone through some limited checks to ensure they are serious. The other thing to remember is some business types are more suited to crowdfunding than others; projects the public can get excited about and connect to are obviously more likely to succeed than mundane or complicated ideas.

It’s also important to realise that crowdfunding is not a short cut – it still requires you to invest time in developing your pitch, answering queries from potential investors and of course promoting your product or business as much as possible to ensure that there are investors!
Professional regulation of crowdfunding sites is, at the moment, largely non-existent. In the United States, where crowdfunding has been around for longer, the recent JOBS Act was passed specifically to accommodate crowdfunding into the business arena. It removed certain restrictions for example on small businesses advertising for investors, but at the same time gave investors the trust they needed to be able to invest in these things. At present, that regulation with the Financial Services Authority (FSA) is lacking, although some sites, such as Seedrs, have gained approval from the FSA it is still an area that is under review.
Crowdfunding is still in its infancy, and as such teething problems are to be expected. But it is a fact that there have been some amazing successes, and the potential for new businesses is very exciting.

Crowdfunding – An Alternative Way To Start Start-ups? 1 2 3

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