Raising capital is an issue for many SMEs, but crowdfunding can be a lifeline for many start-ups and for those struggling to secure finance through the more traditional routes, such as loans from high street banks, investments or grants.
It’s a way of raising finance by asking lots of people for small (or large!) amounts of money - and with an estimated £939m raised in 2013, up 91% from 2012, the ‘alternative finance’ market is an increasingly attractive income stream for social enterprises.
WHERE TO START?
Here are some quick tips to consider before launching into the world of crowdfunding:
- What type of investment are you looking for? Crowdfunding is no longer just a race to see what headline grabbing rewards you can offer. Different platforms offer combinations of donations, investments with rewards, bonds or equity options.
- Find a site that taps into your USP. Is your audience spread out geographically or based around a certain community?
- What are the fees? Typically it is around 7% for a successful campaign with some charging a set-up fee.
- Are the ventures vetted by the host website?
- Is there a refund policy if the project for some reason cannot go ahead?
- Would your investors qualify for tax reliefs under the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) or social investment tax relief ? This may be an attractive offer to investors - read about it all from HMRC here.
- Make sure you are familiar with the FCA policy on crowdfunding.
There are some platforms that stand out from the crowd with sites tailored towards the social enterprise sector and community based organisations. SEUK member Buzzbnk is a social enterprise itself, bringing social ventures looking for start-up or growth capital together with like-minded people keen to participate in a new way of funding social change. Funds can be raised in a variety of ways, from offering fun and engaging benefits, in return for goods or services, or as a loan.
SEUK member Localfunded offers a locally focused, reward based approach. They believe small, independent businesses and community projects truly flourish only when the local community believes in them. Localfunded allows both for-profit and social organisations to pitch their ideas, products and services to their local customers, and to raise finance from their direct customers in a cost effective way.
For a full list of platforms available in the UK visit www.crowdingin.com - this website is run by NESTA, an independent charity with a mission to help people and organisations bring great ideas to life.