Crowdfunding

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Crowdfunding

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Crowdfunding is a fairly new concept and yet has quickly taken off. It’s a fantastic way to obtain funding for, or invest in new and growing businesses. Before using this brilliant new tool, however, it might be a good idea to explore the four key types.
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Investors give money to causes without it being repaid.

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This type of crowdfunding is most familiar due to its uses raising money for charity and disadvantaged people, although many businesses have also made use of it.

A genuine belief in the cause is necessary to support a case requesting funds in this manner, since the investment is not earned back. Despite this, it is a great way to support communities, locally or internationally. It can also prove to be very effective advertising for a blossoming company. Furthermore, the level of funding raised can really help to gauge the depth of public support for your cause, since it will show whether people are really interested in it doing well.

With experience and knowledge of the system, acorn.finance can help you to secure funding for your cause – be it charitable or business – on a win win basis, so that you can make the most of what crowdfunding has to offer.
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Investors give money to causes in return for rewards.

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Although very similar to donation-based crowdfunding, reward-based crowdfunding is likely to receive greater investment because of the potential for something tangible or financial in return.

If the rewards are suitably targeted towards the type of backer you wish to attract, then the funding can be greatly increased. See the story of the company “Tossed” on Seedrs (Tossed). Although Seedrs is not a reward-based platform, Tossed offered suitable rewards as part of their campaign and improved the amount they raised. 

Be careful to choose rewards sensibly so that you don’t price them too highly. Check the average investment on the platform you’re using so you know what to aim for. Contact acorn.finance to find out whether we can help you to raise the money you need through the most appropriate platform.
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Investors lend money to causes, and as such expect it to be repaid with interest.

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Unlike the previous two types of crowdfunding, with loan-based crowdfunding – in principal – you are eventually repaid your investment. This can be a great way to get quick funding for a business start up or expansion, especially if the banks have refused to lend, and the use of the internet means that backing can come from across the world, so you’ll end up with widespread support. The fact that individuals have invested their own money in your project means they have a vested interest in its success. As such, they are more likely to buy its good/services and spread the word of its existence.  

Funding Circle is a platform which operates in the UK, USA, Germany and the Netherlands, and has lent over £2.5 billion to over 25,000 businesses. One example of its work is the story of Rufus Grantham’s loan application to refurbish a derelict pub. He wanted to turn it into a popular bar. Funding Circle managed to secure him £104,000 from hundreds of investors so he could achieve his ambition.
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Acorn.finance has worked with many people and companies to secure them a loan through crowdfunding or peer-to-peer investment (P2P). With P2P worth over 70% of the whole crowdfunding market ($25 Billion in 2015), and an estimated 2,000 platforms available worldwide, acorn.finance’s expertise could be a vital asset to your campaign. We will ensure that it is targeted, meaningful and launched through the best site for you.

There are also examples of loan-based crowdfunding where investors are choosing to fund businesses in the developing world. Zidisha enables poorer people in less affluent countries to secure capital to help start companies. The hope is that they will eventually be in a position to repay the investment. See our other blog articles for some case studies of Zidisha’s work.

 
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Investors buy shares in the company with their investment.

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The final type of crowdfunding rewards investors with shares in the company wanting funding. Much like with loan-based crowdfunding, investors are more likely to care about the success of the project. They will possibly look to advertise it to potential customers – even if they just tell their friends, it’s worth it. Furthermore, having a base of engaged shareholders means you are likely to receive useful collective feedback about the business.
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All types of crowdfunding come with risks, although some are riskier than others. For starters, while the last two types (loan and investment) are regulated by the Financial Conduct Authority (FCA), the first two types (donation and reward) are not. This means that you cannot be sure of the legitimacy of the project or the platform. It is also possible that the project you choose to support will not succeed. In this case you will lose your investment and not receive any rewards to which you were entitled. This is particularly concerning when you consider that crowdfunding is not supported by the Financial Services Compensation Scheme (FSCS).

There are further risks with investment-based crowdfunding, which should be considered. If more shares are issued in subsequent rounds of funding for the company, the shares you own may be diluted. In most situations, there is also no secondary market, so your shares cannot be sold on if they begin to lose their value quickly. You’ll be tied in for the long run.
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Despite the risks, which must be considered very carefully before investing, crowdfunding remains a very good way to build funding, grow the support of the target market and/or a stable of helpful shareholders, or invest your money in companies destined to flourish. With acorn.finance on your business’ side as you enter the world of crowdfunding, it will seem significantly less daunting. Raising money from the public over the internet is a fantastic, modern venture. Contact us so that you can be part of its success.
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Crowdfunding

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