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What is Crowdfunding?

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Crowdfunding is about persuading individuals to each give you a small donation -- £10, £50, £100, maybe more.  Crowdfunding connects investors and businesses to quick and easy business funding, and given that banks are hesitant in lending to small business, crowdfunding has become quite mainstream lately. Crowdfunding has boosted innovation and increased opportunities for social ventures, the arts and business people to expand their horizons.

Crowdfunding has also been used a lot in the music industry, from recording music to funding tours. According to the UK Crowd Funding Association, the world's first online crowdfunded project was believed to involve British rock band Marillion. In 2014 Crowdfunder ran a campaign to raise enough money to bring The Foo Fighters to Cornwall.

The Benefits of Crowdfunding

  1. By pitching your idea to a crowd you are able to gauge how much interest your project attracts
  2. You can engage with your audience as they can provide feedback throughout the process.
  3. You retain complete control of your company as opposed to venture capital where often you have to give your investor a share of the business

Potential Pitfalls of Crowdfunding

  1. The potential for plagiarism. By revealing details about your venture on the internet, there is the risk that someone could plagiarise your idea
  2. Finding appropriate rewards can be difficult, especially at the high levels.
  3. Although it sounds very doable when you promise your time as a reward in return for pledges, it can be a consuming process that takes you away from your business

The Crowdfunding Centre's May 2014 report identified the existence of two primary types of crowdfunding:

Rewards Crowdfunding:

Pre-selling a product or service to raise funds for a business, community or non-profit venture without incurring debt or sacrificing equity/shares. Rewards crowdfunding has been used for a wide range of purposes, including motion picture promotion, free software development, inventions development, scientific research, and civic projects

Equity Crowdfunding:

The backer receives shares of a company in exchange for the money pledged. The company's success is determined by how successfully it can demonstrate its viability. Raise funds for anything, from products to personal projects