Crowdfunding - An Introduction

The Sussex Innovation team has supported several members with their crowdfunding campaigns, offering marketing strategy, messaging and project management to help them reach a wider audience. The Catalyst team is often instrumental in the delivery of these campaigns, and team member Ollie has written the following guide to picking the type of campaign you want to run, and tips for carrying it out.

What is Crowdfunding?

Simply put, it is a method of raising finance by asking a large group of people for a small amount of money. This allows fundraisers to bypass venture capitalists and angel investors and go straight to the general public. Therefore, crowdfunding also helps validate your idea and gauge public interest before launching a product, with the potential for early adopters to become future advocates upon product release.

You may be thinking... why would a person just donate money to a company? well some people are just generous, and believe in the company they see. Others are after something in return. Below is a list of the types of crowdfunding a company can perform, to help you find the site best suited to your company.

Types of Crowdfunding

1) Reward Based

Small to large donations can be made by backers in return for a reward from the comapny, be it the product itself, a special mention or a simple thank you.

Kickstarter:

What they say: "Kickstarter helps artists, musicians, filmmakers, designers and other creators find the resources and support they need to make their ideas a reality."

Best suited to: Creatives. Those within food, art, tech, gaming, gadgets. Kickstarter has 15 categories.

Running on an 'all or nothing' model, you must raise the total funds you request, or you receive nothing. If you are successful, Kickstarter will charge a 5% funding fee and the promises of rewards you made must be fulfilled. If you are unsuccessful, too bad. You won't go home empty-handed however, as throughout the campaign the public will offer advice and feedback to help modify and perfect your idea. As the global market leader for crowdfunding traffic, you shouldn't be short of feedback.

Indiegogo:

What they say: "Dream it. Fund it. Make it. Ship it. We help at every step from concept to market."

Best suited to: Tech, social or environmental causes, indie films. Indiegogo has 24 categories.

Indiegogo are very keen to see you succeed, with lots of online support for your campaign including video tutorials. Similarly to Kickstarter, they operate an all or nothing model, taking 5% of money raised. Unlike Kickstarter, Indiegogo have an alternative option of 'flexible funding' where even if you do not reach your goal you keep the money raised. There is a slight fee difference, charging 9% if you fail to reach your goal.

Crowdfunder UK

What they say: "The UK's #1 crowdfunding website, where ideas happen."

Best suited to: Creative social enterprise, community projects. 15 categories are featured.

Short and sweet - Crowdfunder UK are exactly what they say on the tin. With a large variety of crowdfunding sites available, Crowdfunder UK's purpose is to support the crowdfunding market in the UK. Crowdfunder charge a 5% fee if your project is successful (this amount is taken off of the final amount raised). If your project is unsuccessful, no fees are charged. What makes Crowdfunder stand out is the access to additional funding from a variety of funding support, based on the type of project you have.

2) Donation Based

Often the public will invest in a project simply because they believe in it. Perhaps a social or personal motivation for donating, this method is purely altruistic. Typically designed for non-profit projects or causes, including personal campaigns. 


Crowdrise

What they say: "Crowdrise is the world's #1 fundraising site for charitable and personal causes."

Best suited to: Social enterprises, non profit organisations.

If you are seeking smaller quantities of funding to raise capital perhaps for a socially good project within your business, then this is a great way to acquire those funds. The funds you raise can be accessed at any time, with no goal or deadline requirements. The fees are taken from the donors – not from you doing the fundraising, meaning you get to keep everything you raise! 

3) Equity Based

For start-ups looking for more significant investment with a high potential for growth, equity crowdfunding is more likely to achieve your goal. It rewards those who invest in the project with a small portion of shares in the company, which you determine. It can be a reward that keeps on giving… or maybe not, the risk is yours to take! 

Seedrs

What they say: "Equity crowdfunding done properly. Support before, during and after fundraising ensures that businesses have the best opportunity for success and that their investors are part of it. It's at the heart of everything we do."

Best suited to: Ambitious, high growth potential, innovative firms seeking large investment.

You determine how much of the company you would like to offer to potential investors, and the required investment sought. Seedrs are keen to protect those seeking investment and the investors, and so they are regulated by the Financial Conduct Authority. For successful campaigns, Seedrs' fees are 7.5% of the money raised.

4) Debt Based

Debt based crowdfunding, also called peer-to-peer lending or loan-based crowdfunding, is a method of acquiring funds by bypassing traditional banks. This method allows the general public to invest in your project and in return they receive interest payments over time.

Funding Circle

What they say: "We connect businesses who want to grow with investors who want to lend. By removing the complexity of dealing with other lenders, businesses can access finance in as little as 1 week and investors have the potential to earn better returns by lending to them."

Best suited to: Small businesses looking for capital. 

Allowing you to borrow up to £1million, this is a great option for companies looking for a significant financial loan and less interested in ramping up public interest. Borrowers are charged a fee between 2% and 5% upon raising the desired capital, with the added cost of repaying the loans plus interest. 

Crowdfunding Tips:

Now you know a bit about the different types of crowdfunding, and some example platforms for each, here is a quick list of some essential tips for creating your campaign. 

1. Choose the right platform for you

It's a no-brainer, but as you can see, there are so many platforms out there with different benefits to each – so do your homework! To help, Forbes have put together this great guide of the top 10 crowdfunding sites. 

2. Understand exactly WHY you are doing this

Doing this will help develop your pitch and story which will help attract people to your campaign. If this isn't obvious to the investor, it is unlikely they will be inspired to help you. Do as much work as you can prior to your campaign so you can launch an epic campaign. 

3. Friends, family, colleagues

They are the foundations to your campaign, and the initial promoters to support you. Do not underestimate their power. According to a recent study by Seedrs, of the campaigns that reach 30% of their goal upon initial launch, 90% will achieve full funding - so make sure you've either got some really great mates, or some spare change of your own. Harness the reach of social media with regular updates and sharing unique content. Engage your potential customers with powerful content that they will want to share. 

4. Tell a compelling story

People want to know quickly what you are all about. One of the best ways to do this is using a short, quality video. If you are new to video making, you can find lots of crowdfunding video making advice online. 

5. Enticing offers and rewards

Treat your supporters. They are funding your future so they deserve recognition. By connecting with them and showing your support, they in turn are likely to promote your product to others. If they have any burning questions, be sure to answer them swiftly, and take on board their reviews and comments.