(Last Updated On: 2nd November 2012)

Crowd Funding involves people coming together in order to get a project or organisation up and running. It takes the concept of community investment, online.

At a time when funding is hard to come by, and by that I mean funding at a decent price, Crowd Funding is gaining momentum.

There are 4 types, Donations, Rewards, Loans, and Equity.

Finding the right type is vital for any project.

Each type has risks which both the funder and the project/business need to understand to avoid nasty surprises.

The most simple are Donations. It does what it says on the tin. A funder gives money to an organisation with no expected return. Any organisation can accept donations. But only registered charities can claim gift aid.

Rewards carry the next smallest amount of risk for an organisation. Funders give money to a project in return for rewards, which are often goods or services related to the project. The more a funder gives the better the rewards they receive.  There are plenty examples of what an organisation can give as rewards on sites such as Kickstarter.   It’s vital for the organisation to budget the cost of the rewards versus the amount of funding to ensure they receive the funding they need.

Loans and Equity both carry greater risk for the funder and the organisation seeking funding. As a funder you need to be prepared to lose the money if you are funding a start up. Funders must do their research and an organisation seeking funding should be willing to share information in addition to their online pitches. With Loans or Equity the funder will hope to gain a financial reward, and equity investments may also gain tax relief.  But don’t underestimate that crowd funding projects often provide a funder with a social gain which should not be undervalued.

If you are looking for funding and considering crowd funding, research the various online platforms. The amount that can be funded varies per platforms, as does the small print.

Once you’ve decided on a platform you’ll need to put together your pitch. This is a useful exercise in itself to ensure your project/organisation is investment ready.

Lastly, before committing to any Loan or Equity crowd funding platform I’d recommend you discuss it with your accountant, to ensure it’s right for your organisations future.

So is Crowd Funding cheap funding or a hidden nightmare?

It can provide an organisation with the funding it needs at a good price.  If an organisation does its research upfront and set up the terms and conditions carefully, then there’s no reason for it to be a hidden nightmare.

Here’s some links to crow-funding platforms:

Donations: GoFundMe.com

Rewards: Kickstarter.com and CrowdFunder.co.uk

Loans: FundingCircle.com and Buzzbnk.org

Equity: CrowdCube.com

Rewards, Loans and Equity: BankToTheFuture.com


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