Crowdfunding in the UK

What is UK Crowdfunding and what are Crowdfunding Platforms?

Crowdfunding is a method of raising funds for a project or venture using contributions from a large number of people. This is typically done via the internet. It is a way for entrepreneurs, artists, and other creators to bypass traditional funding sources. They instead rely on the support of their community to bring their ideas to life.

Crowdfunding UK
How to raise finance using crowd funding

How does UK Crowdfunding work and which platforms are there?

There are several different types of crowdfunding, but the most common are:

  • Reward-based crowdfunding, where backers receive a tangible reward or “perk” for their contribution. For example a product or early access to a service.
  • Equity-based crowdfunding, where an investor will receive a share of ownership in the company in exchange for their investment.
  • Debt-based crowdfunding, where backers are lending money to the campaign and receive back the money with interest.

Crowdfunding platforms, such as CrowdCube or Seedrs provide a way for creators to set up a campaign. They can share their story and explain the use of funds, set a funding goal, and connect with potential backers. Backers can then browse campaigns and decide which ones they want to support with a monetary contribution. If the campaign reaches its funding goal, the funds are released to the creator to put towards their project. If the campaign doesn’t reach its goal, the backers’ contributions are refunded.

Advantages

  • Crowdfunding allows creators to test the market demand for their idea before committing significant time and resources to it.
  • It allows creators to build a community of supporters around their project, as well as for future fundraising efforts.
  • It can be a relatively low-risk way to get funding. Backers are only charged if the campaign reaches its funding goal.
  • Crowdfunding can also be a way to raise money quickly, as campaigns typically last only a few weeks.
  • You get access to investors who are looking for investment opportunities

Disadvantages

  • Crowdfunding campaigns can be time-consuming and require a significant amount of work to prepare and promote.
  • There is no guarantee that a campaign will be successful. Even a well-prepared campaign may not reach its funding goal.
  • There may be additional costs associated with fulfillment of rewards. The campaign creators have to be aware of taxes and legal obligation.
  • There are also regulatory risks associated with crowdfunding, particularly when it comes to equity-based crowdfunding. Creators need to be aware of securities laws and regulations that may apply to their campaign.

Who Should Consider Crowdfunding?

Crowdfunding can be a viable option for creators who have a clear idea and a solid plan for how to bring it to fruition, but who may not have the financial resources or connections to traditional funding sources. However, it may not be the best option for creators whose projects require significant upfront investment or who are not comfortable with the level of public scrutiny that comes with running a campaign.

Costs and Risks

The costs of running a crowdfunding campaign can vary. They may include platform fees, credit card processing fees, and the cost of producing rewards or perks. There are also legal and regulatory compliance costs, particularly for equity-based crowdfunding.

The risks of crowdfunding include the possibility that a campaign may not be successful, which may lead to negative publicity.

It’s important to note that crowdfunding can be time-consuming and require a significant amount of work to prepare and promote. Even a well-prepared campaign may not reach its funding goal.

Crowdfunding platforms in the UK including Crowdfunder and raising funds for a charity

There are many crowdfunding platforms available in the UK, and here are some of the top ones that you can access:

  1. Kickstarter: One of the most popular and well-known crowdfunding platforms, Kickstarter focuses on creative projects and has a global reach.
  2. Indiegogo: A similar platform to Kickstarter, Indiegogo also focuses on creative projects and has a global reach.
  3. Crowdfunder: A platform that focuses on community projects and social enterprise in the UK.
  4. Seedrs: An equity-based crowdfunding platform that allows individuals to invest in early-stage and growth-stage businesses in exchange for equity.
  5. Crowdcube: Another equity-based crowdfunding platform that allows individuals to invest in businesses in exchange for equity.
  6. GoFundMe: One of the biggest global personal fundraising platforms, GoFundMe is mainly used for personal causes and emergencies
  7. JustGiving: mainly used for charity and personal fundraising
  8. Funding Circle: Their scheme enables individuals to provide loans directly to small firms. They conceived of a method to link up companies and lenders, so that both parties could profit from the arrangement.
  9. Spacehive: A crowdfunding platform specifically for community and public space projects.
  10. Fundsurfer: is a crowdfunding platform for businesses, projects and ventures with a specific focus on impactful and sustainable projects

This list is not exhaustive and there are other platforms available, these platforms have shown popularity and good reputation in the UK simple crowdfunding scene. It’s important to note that each platform has its own set of rules and fees, so creators should carefully research each platform to determine which one is the best fit for their project before launching a campaign.A UK small business looking for equity crowdfunding in the UK, might use Seedrs to raise capital, whereas a more established business might use Funding Circle for their crowdfunding project.

Case Study – Kickstart and Crowdcube equity crowdfunding

An example of a successful reward-based crowdfunding campaign is that of the Pebble Time, a smartwatch that was funded through Kickstarter. The campaign raised more than $20 million, well above its initial goal of $500,000. The Pebble Time was notable for being one of the most successful crowdfunding campaigns of all time and also for being a pioneer of smartwatches.

Another example of a successful crowdfunding campaign is the campaign for the Oculus Rift, a virtual reality headset that was funded through Kickstarter. The campaign raised over $2.4 million, well above its goal of $250,000. The Oculus Rift was later acquired by Facebook for $2 billion, showing the potential for crowdfunding to support projects with the potential to generate significant returns.

An example of successful equity-based crowdfunding campaign is that of Monzo, a UK-based digital bank. Monzo raised over £1m on Crowdcube, an equity-based crowdfunding platform, in 2016. This helped the company to achieve its target and move on to its next funding round with an overall valuation of £22m. Monzo has since grown to become one of the most successful fintech startups in the UK and now has over 7 million customers and is valued over £2 Billion.

It’s important to note that while the examples above demonstrate the potential for crowdfunding to support projects that go on to generate significant returns, not all campaigns are successful. Creators should be aware that there is no guarantee that a campaign will be successful and even a well-prepared campaign may not reach its funding goal. Creators also need to be aware of the regulatory risks associated with crowdfunding, particularly when it comes to equity-based crowdfunding. You should take a look at the UK Crowdfunding Association website for more details.

Conclusion

Crowdfunding is a popular way for creators to raise money for their projects and bypass traditional funding sources. It has many advantages, such as the ability to test the market demand for an idea and build a community of supporters. However, it also has its disadvantages, such as the potential for a campaign to be unsuccessful and the risk of not being able to deliver on promises made in the campaign. Creators considering crowdfunding should weigh the potential benefits against the costs and risks before launching a campaign. It’s a good idea to also be familiar with the laws and regulations in their specific country as it may vary .

Crowdfunding is a relatively new way of raising money for creative projects and business ventures. Instead of relying on traditional funding sources, such as banks and venture capitalists, creators turn to their community to raise the funds they need. By soliciting small contributions from a large number of people, typically via the internet, creators are able to bypass traditional funding sources and rely on the support of their community to bring their ideas to life.

Crowdfunding can be a viable option for creators who have a clear idea and a solid plan for how to bring it to fruition, but who may not have the financial resources or connections to traditional funding sources. However, it may not be the best option for creators whose projects require significant upfront investment or who are not comfortable with the level of public scrutiny that comes with running a campaign. Creators should weigh the potential benefits against the costs and risks before launching a campaign and consider seeking professional advice to navigate the legal and regulatory aspects of crowdfunding.