There are many ways to fund your start-up – your own funds, re-investing profits, traditional borrowing, loans for mates and crowdfunding.
Crowdfunding is a way of financing your business through donations of money from the public. Crowdfunding is accelerating angel investing as it’s a way of helping a broader base of investors to back companies for both profits and purpose. And, it’s a way for business, social enterprises and creative to bring their ideas to a new audience.
There are 2 typical models of crowdfunding.
The first is donation-based funding whereby funders donate towards a collaborative goal in return for products, perks or rewards. These incentives and rewards can be anything, such as merchandise, acknowledgement, discounts on future purchase of the product you are developing.
The second is investment crowdfunding, where businesses seeking capital sell ownership stakes online in the form of equity or debt. In this model, individuals who fund become owners or shareholders and have a potential for financial return, unlike in the donation model.
With either model it tends to work like this: you post your idea and financial stakes / rewards on offer and people respond. On some websites, you need to set a monetary goal, and a time frame to reach this goal by. Like any good business decision you need to plan before you jump.
And while there are many advantages to crowdfunding, like the opportunity to test your ideas and products, there are also risks and no guarantee that you will succeed.
There are an increasing number of #crowdfunding platforms ion the market place so it pays to research your options.
The platforms can differ in:
- the type of ideas they will accept / are known for
- the people they reach
- their requirements (e.g. some will require you to raise funds within a set timeframe)
- their fees (some may have upfront fees, others only charge if you successfully raise the funds you set as your goal)
- how they can help to promote your idea.
Some of the most popular crowdfunding sites are:
Kickstarter is a site where creative projects raise donation-based funding.
Indiegogo approves donation-based fundraising campaigns for most anything — typically music, hobbyists, personal finance needs, charities (except investment).
Crowdfunder.com is the platform for raising investment (not rewards), and has a one of the largest and fastest growing network of investors
Pozible A platform for allowing creators to secure pledges against offered rewards.
There are still some challenges for Australian business and crowdfunding. You may need to register for certain licenses or meet certain legal terms and conditions depending on the type of business idea you are raising funds for, and also the type of rewards or incentives you intend to give your backers. There may be tax implications as well.
More information?
Visit the crowd funding sites to determine who has the best fit for you. For more information in the legal requirements visit the Australian Securities and Investments Commission’s guidance on crowd funding