What is Business Crowdfunding

Business CrowdFunding is thought to go back over 20 years

So what is it?

Essentially Crowdfunding is a way of raising business finance by obtaining smaller amounts from a large amount of people.

The idea is simple but fantastic, as the risk to each investor can be minimised by the low value of investment to enter into the fund. 

There are 3 main types of Crowdfunding;

Equity Crowdfunding

People invest in an opportunity in exchange for equity in the business. Money is exchanged for a shares, or a small stake in the business, project or venture. As with other types of shares, apart from community shares, if it is successful the value goes up. If not, the value goes down.

Donation / Reward Crowdfunding

People invest simply because they believe in the cause. Rewards can be offered (often called reward crowdfunding), such as acknowledgements on an album cover, tickets to an event, regular news updates, free gifts and so on. Returns are considered intangible. Donors have a social or personal motivation for putting their money in and expect nothing back, except perhaps to feel good about helping the project.

Debt Crowdfunding

Investors receive their money back with interest. Also called Peer-to-Peer (p2p) lending, it allows for the lending of money while bypassing traditional banks. Returns are financial, but investors also have the benefit of having contributed to the success of an idea they believe in. In the case of microfinance, where very small sums of money are leant to the very poor, most often in developing countries, no interest is paid on the loan and the lender is rewarded by doing social good.