11th February 2016
Statistics say that most new businesses will fail in their first five years due to insufficient funding. For many, it is a risk you have to take when wanting to start up your company. With the economic downturn causing banks to tighten their purse strings, many small businesses are now forced to find alternative funding methods to get their dream start-up off the ground. Enter Crowdfunding.
Crowdfunding is a way to raise money, awareness and support for a project from the people around you. The idea of Crowdfunding was launched in 2011 by MP Vince Cable, who wanted to start a fresh new funding channel for small businesses in the UK that put particular emphasis on the power of the crowd through pledges and contributions – and so was born Crowdfunding.
Entrepreneurs and new start-ups with great ideas for a business can raise the money they need in return for rewards. The public can back their idea with pledges of money, and project owners can ‘thank’ their backers by offering them a small stake in their business idea.
Does it really work?
There are several benefits when it comes to Crowdfunding for your business. Aside from financial backing, one of the most beneficial effects is validation for your business and yourself; if people are pledging money to an idea, it proves that people believe in it, which will, in turn, create confidence in your business.
Crowdfunding is also for life and not just for fundraising. The people who support you and your great idea become a part of your journey and will become the ambassadors for your project in the future; an example of this is the success story of The Camden Town Brewery.
Industry giant AB InBev bought the microbrewery last year for around £85million. Just five months earlier, the brewery – which only started in 2010 – used Crowdfunding to raise £2.75million before needing to expand.
Investors are thought to have been offered up to £1.25 for each share – a return of almost 70 per cent on top of their original investment within a year. This is a fantastic example of how Crowdfunding can help advance a business.
Of course, there are some downsides to Crowdfunding. Business ideas can be stolen or copyrighted if not correctly protected and if a company is unable to hit its funding target the funds raised by investors or contributors are often returned.
One last thought
If you are a small business looking for funding, Crowdfunding could be your alternative finance option. The funding could ultimately help develop your business and create loyal customers along the way, which is always a bonus for a new startup.
If you are a freelancer, sole trader, or small business owner, get in touch and see how we can help. Our clients have access to a dedicated bookkeeper, a qualified accountant, and an award-winning accounting dashboard, all included in our fully tailored accountancy service.
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