Crowdfunding can be a way of raising finance relatively quickly, often without upfront fees. It provides an alternative to funding from conventional means (eg a bank loan).
To raise funding you will typically have to showcase your idea to potential investors through a crowdfunding website. An investor will select what they want to get in return for providing a specific amount of money. This is usually based on what you decide to offer – this could be a stake in the company, a percentage of your profit or even rewards, such as gifts.
Crowdfunding can help you to generate funds for a project but can also allow a business to market test a product that may only be in planning phase. This process of raising this type of finance may also help to promote a business or product before it has launched.
Investors using crowdfunding will often look for:
- evidence of a tested idea that has the potential for future growth and development
- an idea belonging to a high growth sector (eg technology), or an industry that the funder has a personal interest in
- a niche idea that has an established audience in the marketplace
See Nesta's (National Endowment for Science and Technology and the Arts) guidance on understanding alternative finance.