Crowdfunding: The Basics
For early-stage businesses, crowdfunding has become a hugely popular method of generating capital. Millions of startups now opt for crowdfunding over pursuing traditional VC investment.
This is because it’s understandably daunting to place your financial fate in the hands of just one investor. Good news – you no longer have to!
Instead, crowdfunding gathers a large community of supporters, who collectively invest in your project with the aim of helping it achieve its growth potential.
Not only does this encourage founders to take the leap towards getting their product to market, but crowdfunding also allows users to gauge demand for their idea and gain feedback from a large business-oriented community.
So, if crowdfunding ‘backers’ aren’t always high net-worth, or supported by a VC firm, why would they take the risk in investing in your business?
The answer is, a number of incentives are available in return for financial support.
These incentives outline the three types of crowdfunding commonly used to play a prominent role in the growth of startups and SMEs:
💰 Reward crowdfunding: Supporters invest funds and, in return, receive a non-financial reward. This could be anything from a small gift to product samples, depending on the amount they pledge.
💰 Debt crowdfunding: Investors lend funds with the promise of re-payment, plus interest, over a specified timeframe. This method can be quicker and easier than relying on a bank loan.
💰 Equity crowdfunding: In return for financial support, investors receive a portion of company ownership, or shares in the business.
So, now you’ve got an idea of how crowdfunding works, and why its’ popularity has skyrocketed.
Now, we’re going to take a look at the UK’s leading crowdfunding platform, Crowdcube, and how its unique model has attracted over 1.2 million users.
If you’re not new to crowdfunding, chances are you’ll already have heard of Crowdcube.
Established in 2011, Crowdcube has since funded over 1,000 businesses and received over £1bn worth of investment.
Crowdcube falls into the category of equity crowdfunding, meaning that supporters are rewarded with shares in their chosen project.
Here’s a rundown on the process for crowdfunding campaigns listed on Crowdcube:
It’s totally free to list your project, no management or administration fees are taken.
Fundraisers set a funding goal which they aim to achieve through the campaign.
Investors receive a small portion of ownership of the business.
If the funding goal is not met by the end of the specified period, investors are refunded, and the fundraiser isn’t charged.
If the funding goal is met, investors simply pay a fee of 7.5% of the overall profit.
What makes Crowdcube special?
Crowdcube’s model encourages investors not only with equity, but also with full reassurance that they’re protected from throwing money at unsuccessful campaigns.
For listed projects, this means that investors may be more generous than if this safety-net wasn’t in place.
Better yet, founders can be confident that they won’t have to dish out any fees unless they come away with sufficient funds to make their mission possible.
With Crowdcube, both innovators and investors come out winning!
A fantastic appeal of Crowdcube is the unique post-funding support on offer.
Approved projects that succeed in meeting their funding goal are invited to join the platform’s Funded Community, where founders receive ongoing support through a network of partners sharing expert insight directed at long-term growth.
As a member of the Crowdcube Funded Community, you’ll have access to specially selected services to help you overcome the toughest challenges that high-growth companies face.
Crowdcube takes Europe!
Crowdcube’s success shows no signs of stopping.
Just this month, Crowdcube announced plans to expand beyond the UK. Their launch across Europe follows new guidelines implemented by the European Union (EU) that simplify the rules around fundraising.
With the help of the Regulation on European Crowdfunding Service Providers (ECSP) entering the scene, Crowdcube’s portfolio and reach is set to reach new heights.
"We have a decade of knowledge and expertise in the UK, which we can now leverage fully in a much larger market, and are well-positioned to capitalise on the new regulations and help businesses engage with their customers and communities in Europe for the very first time."
- Darren Westlake, CEO and Co-founder of Crowdcube
Claim Capital and Crowdcube are joining forces! Claim Capital is thrilled to be hosting a webinar with Crowdcube during this exciting phase of growth!
As the third instalment in our fundraising series we’ll be sitting down with Daniel Sparkes, Senior Equity Fundraising Manager at Crowdcube, to discuss the secrets of how to run a successful crowdfunding campaign.
With success stories such as Monzo under their belt, if you’re looking to raise funds, there’s no greater expertise out there.
Join Claim Capital and Crowdcube on the 8th of December at 1pm. Save your seat by registering here!