Crowdfunding options for British Companies

Crowdfunding is an alternative to bank or venture capital fund financing that is growing in popularity, especially among small and medium-sized businesses. Therefore, in this article I explain the different crowdfunding options for British companies.

What is crowdfunding?

Crowdfunding is a way for companies to raise funds without having to resort to large financial intermediaries, such as banks. Instead, they are replaced by anonymous individual donors (also called backers in this field) who, in exchange for a number of advantages or altruistically, contribute monetarily to the financing of a project.

These campaigns are mostly run through online platforms. These, in addition to allowing to manage this plan, facilitate the attraction of investors and ensure the transparency of the process.

In most cases, the businesses that resort to crowdfunding are those that develop an artistic work (especially in the musical field). Campaigns to obtain funds with the aim of achieving a social or technological goal are also common.

The Different Crowdfunding Options for British Companies

There are several models of crowdfunding. Each one has its own characteristics, advantages and disadvantages. Therefore, depending on the peculiarities and the object of the business, directors will choose one option or another.

Rewards-Based Crowdfunding

This crowdfunding option consists of offering a number of advantages to donors in exchange for their contribution. Some examples of benefits to give would be early access to the product for which the company needed funds or handing over discounts to buy the item, among others.

Donation-Based Crowdfunding

In this type of micro-patronage, backers do not receive any compensation for their donation to the project. In return, the company will offer them updates on the evolution of their plans and will give explanations about the uses the company has given to the money that the patron has contributed with. Above all, enterprises use this crowdfunding model in social projects and in those that seek to save or improve human lives.

Crowdlending

Crowdlending, or debt-based crowdfunding is an option that tries to attract small investors to contribute a certain sum of money to the company. After a certain period of time, the business will return the contribution to the backer along with some interest.

It stands out for being a faster and more affordable alternative for a business compared to other possibilities.

Equity-Based Crowdfunding

In equity-based crowdfunding, the backer obtains some shares of the company in exchange for the funds they have contributed with. The corporation must therefore ensure its ability to expand its equity capital or to share its profits among investors.

Crowdfunding Platform Options for British Companies

Kickstarter

Kickstarter is one of the most popular crowdfunding platforms in the world. Especially, companies in the artistic or technological world use it. Its main feature is that it implements an “all or nothing” model. This means that the business sets a fundraising goal and, if it does not reach it, Kickstarter will return the funds to the backers.

Patreon

Patreon is destined primarily to content creators on social media. Backers will donate money to one person through monthly subscriptions. In return, they will receive certain exclusive benefits. Doing so, you will achieve a better audience loyalty.

Fundrazr

Fundrazr focuses on helping individuals and NGOs raise money for social, medical or judicial purposes. Like Kickstarter, it also has “all or nothing” options. The main feature of Fundrazr is the integration on the platform of social media and marketing tools. This way, it is easier to spread these campaigns.

Conclusion: Are Crowdfunding Options Adequate for British Companies?

On the one hand, crowdfunding gives the company greater freedom in decision-making. This is because they will not depend on the contributions that investors want to impose. It also makes earning the loyalty of the backers who supported the project easier.

On the other hand, crowdfunding can be detrimental to certain types of companies. To start one of these campaigns, it will be necessary to explain the business plan of the business, so if you work with confidential information or if you do not want to reveal the commercial strategies to the competition, this type of financing will not be adequate.

In conclusion, although crowdfunding is a great alternative to financing through banks or investment funds, it is important to evaluate the characteristics of each company before choosing crowdfunding.

In ukstartcompany, you will find information about how to establish, register and operate companies with different legal structures and business activities in the UK.