Three's a Crowd (funding opportunity)

Crowdfunding – the collection of funds through small contributions from many parties in order to finance a product or venture – has been growing rapidly in recent years, mainly due to the possibilities afforded by the internet. There are already hundreds of crowdfunding platforms through which investment can be sourced in the UK, and scores of projects have been made possible.

How do you do it? Basically, you use the internet to find a site which you think will work for you and if you are an entrepreneur or project ‘owner’ you register your venture for crowdfunding, whilst if you are an investor, you register yourself, and then choose ventures in which to invest.
Sound simple? It is. But before you start, Salt has a few general tips to help you know what you’re getting into. (It should go without saying that, as with anything involving money, you should make sure you read all terms and conditions carefully, and take necessary precautions to keep your personal and financial details safe).

Benefits for the investor:
You can feel part of a new venture, and whether its purpose is charitable of profit-making, you can feel that you have contributed to someone else doing well.
You may be given an opportunity to put your name (or your company’s name) onto the venture in some way, resulting in publicity and brand awareness for you
You may be offered some form of reward in terms of product or service, or credits for future purchases
You may even – and it has to be said, this is rarer, receive some financial return on your investment.

Risks for the investor:
If the project fails to reach its revenue-generating target, your money may be lost. There are safeguards on some sites, which ensure that cash is held in an escrow account until it’s all there, so if the scheme doesn’t make it, the money is returned, but not all sites will do this.
If the project raises its money but then fails, your name may be attached to a failed venture.
You may find yourself carried away by the ease of investment and the excitement of project plans available for you to invest in. Remember, it’s business.

Benefits for the entrepreneur or project owner:
You may well be able to raise money you would not be offered through conventional sources, ie. banks.
You have a ready-made customer base, through which you can raise profile, source feedback, increase sales, test product and make predictions and forecasts for the future.
The voice of your ‘crowd’ may well help you in developing your venture further through larger scale funding sources.

Risks for the entrepreneur
Your failure, should you experience it, is much more public
Crowdfunding sites offers little or no Intellectual Copyright protection. Once your project and its workings have been exposed to investors, it is ‘out there’ and anyone can copy it. (You can take steps to protect yourself through trademarking, patenting, copyrighting etc but the responsibility is all yours).
The bank of donors registered with a given crowdfunding site may become exhausted, if aked for too much, or to invest in too many projects
There is as yet no regulatory framework supporting crowdfunding. Where there is money, there are scams.
Salt for Small Businesses will keep a lookout for more info and tips on this exciting new way to get involved in business and make things happen. In the meantime, if you have direct experience of crowdfunding, as an investor or as an entrepreneur, please let us know.