From personal passion projects to multi-million dollar movies, crowdfunding has emerged as a serious means of harnessing investment. Platforms such as Seedrs, Kickstarter and Indiegogo have gained notoriety for showcasing novel ideas, and bringing niche products and projects to life.
Running a successful crowdfunding campaign requires planning in a number of areas that might be unseen and unfamiliar. This can include the tax obligations of taking donations, which investments are liable to be taxed, and the distribution of rewards. But the positives are also numerous.
Many businesses have used the money gained from crowdfunding to fund entire product launches, propelling themselves into mainstream success. Others have used the investments as a sign of interest, gaining further support from established seed capital and angel investors.
Here are just a few reasons why your business might consider crowdfunding:
Ownership doesn’t have to be diluted
Depending on the nature of the crowdfunding platform, you may be able to divest less of your business, or even retain complete ownership. With the option to pursue donation-based campaigns, your business can focus on delivering a great product to your backers, rather than feeling influenced or pressured by investors.
Financial reporting is simplified
Investors and donators alike expect progress reports, both on the state of the business and your upcoming products. The good news is that most platforms have built in tools to simplify this process.
As a nascent business, getting into the groove of setting targets and detailing your efforts to meet them will put you in good stead, and make you more reliable and efficient in the long term.
Fast access to capital
Some crowdfunding campaigns will fail if you do not reach your stated investment target by a certain date; others are ‘flexible’, and allow you to keep it. But all of them will make the money available quickly, allowing you to receive funding and plan around it within a month or two.
Gain PR and exposure
The familiarity of both the media and social media users with crowdfunding, as well as the often off-kilter nature of crowdfunding projects, makes them natural candidates to ‘go viral’. Even without major attention, your project will be well-served by being shared around by investors and interested parties.
Test proof of concept
A successful crowdfunding campaign offers immediate evidence that your idea is a palatable one. This is potentially a catalyst not just for further investment and distribution deals, but also an opportunity to hone your concept for release, or for future crowdfunding campaigns.
Provides a potential customer base
Not every crowdfunding campaign is successful, but this mixed hit rate makes the positive experiences even more valuable. A positive equity-based crowdfunder will reap rewards for you and your investors, while a great product funded by donations can win customers for life.
You can dilute financial risk
Crowdfunding often involves a much larger proportion of much smaller investments than a business would traditionally receive. Instead of shouldering the burden of a bank loan, for instance, you are looking to win the trust of investors and donators.
This creates its own pressures, but is an effective way for the business owner to manage and dilute risk. This is particularly true for early-stage businesses, whose lofty goals offer significant potential rewards with comparable risks to the investor.
While this does not represent the breadth of crowdfunding opportunities, or the more serious equity-based crowdfunding market, it gives you a flavour of the possibilities. Crowdfunding is an excellent option for entrepreneurs and startups alike, and the European market has already raised over £10 billion through public investment.
For more information on the tax implications of a crowdfunding campaign, or expert advice on planning a successful one, feel free to get in touch.