What to consider?
If you are considering raising finance for your business, project or venture through crowdfunding, there are a number of factors that you might want to consider. We have compiled a list of advantages and disadvantages that we believe highlight the pro’s and con’s of crowdfunding.
Eight advantages of crowdfunding:
it can be a fast way to raise finance with no upfront fees
pitching a project or business through the online platform can be a valuable form of marketing and result in media attention
sharing your idea, you can often get feedback and expert guidance on how to improve it
it is a good way to test the public’s reaction to your product/idea – if people are keen to invest it is a good sign that the your idea could work well in the market
investors can track your progress – this may help you to promote your brand through their networks
ideas that may not appeal to conventional investors can often get financed more easily
your investors can often become your most loyal customers through the financing process
it’s an alternative finance option if you have struggled to get bank loans or traditional funding
Six disadvantages of crowdfunding:
it will not necessarily be an easier process to go through compared to the more traditional ways of raising finance – not all projects that apply to crowdfunding platforms get onto them
when you are on your chosen platform, you need to do a lot of work in building up interest before the project launches – significant resources (money and/or time) may be required
if you don’t reach your funding target, any finance that has been pledged will usually be returned to your investors and you will receive nothing
failed projects risk damage to the reputation of your business and people who have pledged money to you
if you haven’t protected your business idea with a patent or copyright, someone may see it on a crowdfunding site and steal your concept
getting the rewards or returns wrong can mean giving away too much of the business to investors
Before deciding on a crowdfunding platform for investment, we advise that you consider all other forms of finance to find the one that most suits your needs.