Crowdfunding – how to stand out, with a little help from the crowd
The Manchester Evening News interviews me recently
It’s a long article .. so extracts here ..
Imagine that you have a bright idea for a new product, film or gadget. You’re convinced it’s going to be a big hit but the banks aren’t willing to lend and you can’t get any other source of funding. This lack of financial resource is now driving many people and organisations to ‘crowdfund’ their ideas, projects and even businesses. As the name implies, crowdfunding is a term used to describe any situation in which a large number of people get together, usually via the internet, to collectively fund other people or businesses.
Crowdfunding has gained momentum over the last year thanks to the web. The idea has particularly caught on in the social enterprise, charities and creative sectors and, more recently, it is being used to finance new start-ups or help existing businesses expand or launch new products. Anne Strachan is the only crowdfunding trainer in the north. Through her business, CrowdfundUK, she holds workshops across England, raising awareness about crowdfunding, how it works and how to make the most out of it. She said: “Although the concept is actually old, the method of crowdfunding today is new. Its popularity is gaining momentum because there is a need for finance and thanks to the internet, organisations and individuals can also reach out to more people through their social networks quicker than ever before.
Anne said: “It could be a charity wanting to refurbish its kitchen, or an individual who wants to fund their gap year in America. In the US, people are asking for help to fund their health care costs, or it could be an individual who wants to start a business. “People get an idea, develop that idea, find an online platform they like, then post their idea online, a bit like a pitch on Dragons’ Den. “It is then up to the individual to let their family and friends know about it so they can donate money, and then they can pass it on to their friends and so on. “It’s not an ongoing fundraising initiative. You can raise money for 30 days or 90 days, but it has to be for a finite time. For example, you might have a friend who wants to finance a theatre play and wants to get funding. So she puts the idea on a site and lets her friends and family know through social media platforms to spread the word and people can donate £10, £20 or however much they like. “If all those people donate the event can happen. In return they will receive a reward tiered to the donation. The bigger the donation, the bigger the reward. You might get a ticket to see the play, or a ticket and a chance to go backstage or get an invitation to the launch. If you’re a cosmetics company and you raised money to launch new products, in return for the investment, you may want to give your investors some products. “The majority of crowdfunders work on a donation basis, investors do not get monetary returns, instead they get something back that’s relevant to the project they donated to. “But if an organisation doesn’t raise the amount they need, the investors get their money back. The funds only go to an individual after they’ve raised the full target amount.”
However, Anne believes equity based crowdfunding – where individuals can invest money in return for a stake in a business – will take off this year. “This is a great way to help entrepreneurs raise money but it also allows investors to take a stake in the company. “Investors make their money when the business is sold or a product really takes off. “Crowdfunding equity has not been legal in the States because of concerns around fraud. However, last month President Obama signed a new bill as part of the Jobs Act to make it legal and now crowdfunding equity is just going through the roof in America. People have been lobbying for it to happen for months because businesses aren’t getting the finance they need and this provides a new way of doing this. “It is going to have a ripple effect here in the UK.”