Raising funds for your startup doesn’t have to involve asking a single investor or grant-awarding body for an eye-watering sum of money. In fact, you may be met with resistance when taking this route.
An increasingly popular way to generate capital is to crowdfund your project.
If you’ve not heard of crowdfunding, chances are you’ve come across it on social media, probably in the form of donation crowdfunding:
‘I’m running the London Marathon, please sponsor me!’
What you may not know is that other crowdfunding methods play a prominent role in the growth of many early-stage businesses.
Crowdfunding can be seen as gaining a large community of supporters, who collectively invest in your startup venture with the aim of helping it achieve its growth potential. In return for their support, those who back your idea are offered a number of incentives.
Incentives for potential investors outline the three types of crowdfunding often used by 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 time-frame. 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.
If you’re a founder reading this, don’t dismiss the value of crowdfunding as a fundraising tool! As of 2020, Fundly revealed that crowdfunding has contributed a whopping $65 billion to the global economy in business revenue.
What’s more, crowdfunding is a great way to gauge demand of your product or service. Founders can be validated by interaction from millions of users actively searching for an exciting business to get behind.
In turn, when a potential backer sees like-minded investors showing support for a project, they’re likely to feel more confident in their pledge.
There’s no doubt that crowdfunding websites are an exciting space for SMEs, and a great way to raise funds. Below, we’ve put together a list of the 6 best crowdfunding platforms for UK enterprises.
1. Kickstarter
Fee: Kickstarter takes 5% if you meet your goal, plus payment transaction fees between 3% and 5%.
Best for: Worldwide audience.
Kickstarter is known around the globe for its rewards-based crowdfunding, focusing on creative industries. Since its launch, Kickstarter has successfully raised funds for over 200,000 projects.
The platform’s strategy is based on investors being offered incentives, or rewards, in exchange for their support. These rewards can include;
· Exclusive access to pre-order the product that they’re funding;
· Discount codes;
· Product merchandise.
Projects listed on Kickstarter can boost capital further by organising rewards into tiers, with larger investments granting access to more attractive benefits.
Kickstarter limits capital risk for investors by letting them hold onto their funds if a project doesn’t reach its fundraising goal. In turn, you won’t be charged any fee unless this checkpoint is reached - keeping both investors and entrepreneurs happy.
This far-reaching stage is a safe choice for funding your innovation.
2. Indiegogo
Fee: 5% fee if your project meets your financial goal.
Best for: Equal opportunities / flexibility.
Rewards-based crowdfunding site Indiegogo differs from competitors by diverging from the all-or-nothing fundraising model used by Kickstarter. Indiegogo is a contemporary hub brimming with Femtech innovation, with 47% of projects that exceed their funding goal being run by women.
Projects listed on Indiegogo can pursue either fixed or flexible funding.
If your project has a funding goal set in stone, fixed funding may be your preferred route. This strategy, like Kickstarter, only takes cash from investors of successfully funded ideas.
But for campaigns that can benefit from raising any amount of capital, flexible funding distributes funds whether or not the crowdfunding goal has been met.
Another perk of Indiegogo is its InDemand service, which gives innovators the option to continue fundraising after your campaign has ended, to help fund your next stage of production.
3. Seedrs
Fee: Seedrs charges 7.5% commission on funds raised (large, high-profile projects may occasionally see a reduced rate). They also charge a carry of 7.5% on any profits.
Best for: SEIS Tax Relief.
Seedrs is one of the UK’S favourite equity-based crowdfunding platforms, and it’s easy to see why. Since its birth in 2011, the platform has raised just under £1 billion in funding for thousands of early and later-stage businesses.
Users love Seedrs for its easy-to-use interface, and the promise that investors will get their money back if the project doesn’t achieve its funding goal.
A fantastic appeal of Seedrs is that the majority of its listed projects are eligible for the Seed Enterprise Investment Scheme (SEIS), reducing financial risk for backers. If a company is SEIS approved, investors can receive income tax relief of up to 50% on their initial investment, as well as exemption from capital gains tax.
Fee: Fixed cost set-up fee of 2% + VAT.
Best for: High net-worth / Venture Capital investors.
Syndicate Room is an equity-based crowdfunding platform that exclusively lists companies that have previously received funds from Angel Investors. Proven contribution from Angel Investors allows Syndicate Room to gage a project’s viability before making it available for crowdfunding.
This structure has built trust between Syndicate Room and its investors and has led the platform to become the upper echelon of UK-based investment opportunities.
Fund investments made on Syndicate Room are also eligible for the Enterprise Investment Scheme (EIS), entitling investors to claim 30% income tax relief on their initial investment, amongst other benefits.
Syndicate Room’s vetting process does a great job of reducing capital risk for funders. If your SME has achieved Angel Investment, entering a pool of pre-seed businesses may feel like a step backwards. This crowdfunding platform is the place to raise the funds to continue your growth trajectory.
5. Crowdcube
Fee: 7% of funds raised if your goal is met, with a 0.75% to 1.25% completion fee.
Best for: Post-funding support.
Another equity-based crowdfunding favourite is Crowdcube.
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.
6. Zopa
Fee: Interest rates may vary. Check out Zopa’s loan calculator.
Best for: Non-dilutive debt-financing.
Zopa holds the title of the UK’s largest debt-lending crowdfunding platform, and the world’s first peer-to-peer funding website.
Unlike others listed here, founders that use Zopa to raise funds receive a low-interest loan that won’t affect their credit score, and investors get a guaranteed payout. It’s a win-win on both sides.
Zopa’s lack of early repayment fees is another reason why this platform outshines typical bank loans.
If you want to fund your startup without losing equity, and rewards-based crowdfunding isn’t for you, this platform is the obvious choice.