Is Crowdfunding the Right Business Finance Option for You?

All of our reviews and recommendations are completely impartial but some posts may include affiliate links that can earn us a commission. Click here for details.

When it comes to financing your small business, there are a number of options that could work.

With small businesses making up 99% of all business across the US and UK, according to the US Small Business Advocacy and UK Parliament data, it seems plenty are thriving from the decisions their owners have made.

Of course, what financing works best depends on the current size of your business, the market size and your ambition. But, one option that works for a wide range of business sizes and industries nowadays is crowdfunding.

What is Crowdfunding?

Crowdfunding is essentially where you list all the details of your business on a suitable crowdfunding platform and ask people to invest in it.

In equity-based crowdfunding, you provide the investors with a pre-disclosed share in your business. It could be that £1,000 gets the investor 1% of the business and £10,000 secures them 10%. It depends on how much you need to raise and what your business is worth.

Or, you can offer a certain number of the products your business makes, or access to the service your business provides. This is called rewards-based crowdfunding and can work well for smaller investments.

Crowdfunding Industry Growth Highlights its Success

The industry really only got going in 2008, with Indiegogo one of the first well-known platforms. But according to research by Massolution, by 2015 crowdfunding was worth some $34 billion. Analysis from the World Bank estimates the industry will be worth $93 billion by 2025.

Indeed, having worked with many businesses who have expanded successfully after gaining their financing through crowdfunding, the outcome has impressed business analysts Corporate Business Solutions and tips from other industry insiders suggest that many crowdfunded firms will thrive. However, just because it has worked for many other businesses, it doesn’t mean it’s a natural fit for yours. To be sure about that, you’ll need to do some additional research and due diligence.

Pile of $100 notes

How to be Certain Crowdfunding is the Right Option

Questions to consider before selecting the crowdfunding route to raise the investment you need for your business include:

  • Can you clearly show potential investors why your business will be a big success?
  • Are you happy to have all your financial details on show to any potential investors, even those who decide not to get involved?
  • If you opt for equity crowdfunding, are you happy to sell a potentially significant share of your business in return for the funds you need?
  • If you’re working on a rewards-based crowdfunding model, can you deliver everything that’s required of you should the crowdfunding process be successful?

If the answer to those questions is yes, then crowdfunding could be a great option for your business growth plan.

Just because you list your business and details on a crowdfunding platform, it doesn’t mean you will be able to achieve all the funding you require. Usually, if you don’t hit your target, you can’t secure any of the funding that potential investors have pledged.

Taking the step of posting your business investment pitch onto a crowdfunding platform can be daunting. However, it can also give your business some additional publicity – and that happens even if your pitch doesn’t net you the funding you require.

When you’re planning your next stage of business growth, don’t just head for the high street lenders. Consider all your options – including the world of alternative finance and crowdfunding. You might be surprised at how well it works for you.

HEADER PHOTO: by Benny Jackson on Unsplash

Leave a comment