Top 10 Crowdfunding Platforms of 2020

Best Crowdfunding Platforms for Business Finance

Entrepreneurs all begin their journey with the hope to grow and expand their business into an empire, for financial gains or to serve the community through creating employment, paying taxes and by servicing a specific problem its intended users face. Bringing an innovative idea into the market is just the first step; enormous amounts of cash are required to grow the idea into something meaningful and sustainable. The Department for Business, Energy and Industrial Strategy (BEIS) provides support in this regard.

It wasn?t that long ago when the only two ways to accumulate funds was either by borrowing money from friends or family or by taking long-term loans from the bank. Banks still to this day consider funding a startup or a small business as a high-risk option. In most cases, banks refuse to provide funding to startups, especially when they cannot provide collateral. Similarly, it is difficult to convince someone from your family and friends to provide you with the funding due to a lot of ideas being completely new and not the old brick and mortar businesses.

The 21st century has brought massive improvements in the world of science and technology. The digital age has brought at the forefront the introduction of innovative business models which are disrupting the traditional way of doing things; one such innovation has been crowdfunding, an innovative method to help entrepreneur gather funds for innovative business ideas. If you are struggling to polish your business model, our guide to the business model canvas can be a great starting point.

What is crowdfunding?

Crowdfunding is an innovative method of raising capital with the help of contributions. These contributions can be made through individual investors, clients, friends, and family through social media or crowdfunding platforms. The crowdfunding method allows businesses to gather the sufficient funding needed to implement their business idea successfully. They do so by tapping in the network, gaining financial support and reaching the market for potential contributors.

Crowdfunding vs Traditional Funding

The traditional funding method is quite different from crowdfunding. Businesses are usually required to approach an institution with some form of security to access funding or with a business which has achieved some level of success to attract a wide pool of wealthy investors, banks or venture capitalists. The main issue with this approach is that it doesn?t allow one to reveal the entirety of the business idea in front of the investor audience. It may lead to loss of money and time if the business owner fails to present the idea to the right investor at the right time.

The crowdfunding platform help save entrepreneurs a tremendous amount of time and money. It enables individuals to develop, present and share their pitch on a single online platform. The various platforms available provide solutions for businesses at various stages of their business cycle. Crowdfunding gives a chance to business owners to present their business plan to a massive audience. Crowdfunding not only saves you time and money. It also helps you target the right investor for your business. While ensuring that the risk for the investor is minimised by allowing a large group of investors to invest small amounts of money. By ensuring that your business plan lands in the hands of the right investor. If you need help preparing for your crowdfunding, speak to a startup accountant.

If you are thinking about starting a business, start with our startup guide.

The 2019 statistics presented by Fundly suggest that over 34 billion has been raised via crowdfunding platforms globally. This has exceeded the amount raised by peer-to-peer lending, which currently stands at 25 billion. Statistics reveal that over 5.5 billion have been raised through reward and donation-based crowdfunding platforms. While equity-based crowdfunding has enabled a fundraise of 2.5 billion.

Types of crowdfunding

It?s very important to differentiate between the different types of crowdfunding. Each type has its own purpose and differs significantly from one another.

Crowdfunding can be divided into four primary categories.

• Donation-based crowdfunding
• Reward-based crowdfunding
• Debt crowdfunding
• Equity crowdfunding

Donation-based crowdfunding

The donation-based crowdfunding, as the name suggests, is a fund collection method where donors make a small to a large number of financial contributions. This type of crowdfunding aims to sponsor a not for profit or social cause. Such as planting trees, digging wells in the water-scarce regions, sponsoring a child?s education or helping cover medical expenses of poor-families.

People are now utilizing popular crowdfunding platforms like GoFundMe and Crowdrise to help them raise funds for their social causes.

Related: Read our guide to the different sources of funding.

Reward-based crowdfunding

The reward-based crowdfunding is a type of crowdfunding where donors offer a specific amount of money to the business with the expectation of receiving a reward. The reward can be a product or service that your business is selling. However, it?s not always the product. It can be a reward in other terms as well, like a discount of a fixed fee sale.

The site is one of the top-rated crowdfunding platforms along with Kickstarter for reward-based fund collection.

Debt crowdfunding

Unlike rewards-based or equity crowdfunding, debt crowd funders do not expect any reward or ownership in the company. The process is somewhat similar to borrowing a loan. The lenders expect a principal plus interest in exchange for their financial assistance.

Also, unlike bank loans, where you borrow a single massive loan, debt crowdfunding allows the individual to take multiple small loans from different people.

People usually utilize debt crowdfunding for home renovation, credit card reloading, purchasing a car or home and many other personal reasons. ZOPA is one such platform.

Equity crowdfunding

Gathering funds through equity crowdfunding allows individuals to gain the required amount of funding from investors. The funding is at the cost of giving up a percentage of ownership (equity) in the company. This is only possible once the business has taken off.

Unlike donation or reward-based crowdfunding, it helps gather enough financial capital to help a business launch itself. Or move past the growth stages. Equity crowdfunding is not just restricted to help fund a creative business idea or a noble cause.

Seedrs and CrowdCube are some of the major equity crowdfunding platforms in the UK.

What type of crowdfunding does your business need?

Crowdfunding has taken off over the past few years, resulting in, more financing options available for entrepreneurs than they ever had before. However, it?s now up to them to act wisely and select the most suitable crowdfunding option for their business. You can always speak to an accountant to help you choose the optimal crowdfunding option. Since they will be able to guide you with the expertise they have acquired.

This section will help you decide the most suitable crowdfunding option for your business by shedding light on the advantages and disadvantages associated with each option.

Rewards-based crowdfunding

Advantages:

1. Unlike equity-based crowdfunding, you don?t have to sacrifice a portion of your company, which might be of value later. You will receive funding in exchange for a gift or reward that costs much less than the share you give up, or the principal interest you?ll payback. Though you might face an issue when shipping the contributors their promised gifts. However, the benefits outweigh the costs.
2. The reason why so many entrepreneurs are approaching reward-based crowdfunding is more than just the money factor. It also helps create your product?s following before its launch. Entrepreneurs gain more confidence over their business idea by getting a response as soon as you reveal your product for fundraising online. By judging the public reaction, one is able to decide whether the product will be accepted or not.

Disadvantages:

1. Even if you are able to raise money for your product or idea, there is no guarantee for your business to be successful. There have been several successful fundraising campaigns in the past that went bankrupt due to mismanagement. Moreover, another reason may be the challenge faced when one has to develop and ship the product. This is not an easy task, especially for startups.

Suitable for: Creative, IT and manufacturing businesses, and creative freelancers who want to raise money for their equipment.

Debt crowdfunding

Advantages:

1. Not everyone is lucky to get the required amount of loan from a bank. However, with debt crowdfunding, you can take multiple small fundings from many investors. Thus the availability of a large pool of interested investors on a single platform automatically increases the chances of acquiring the funding easily and quickly. Moreover, the amount of payable interest is usually lower than the amount you would pay back to a bank.

Disadvantages:

1. Although debt crowdfunding saves several trips to the bank. You need to bear in mind that it?s just another loan that comes with the stress of paying it back eventually.

Suitable for: Startups, early-stage businesses.

Equity crowdfunding

Advantages:

1. Equity crowdfunding, as compared to other crowdfunding methods. It is able to generate a large amount of funding for your startup.
2. Without having to deal with so many investors separately. Crowdfunding platforms help entrepreneurs deal with several investors as a single investor. Thus, saving entrepreneurs the trouble of dealing with suggestions provided by multiple investors at the same time. It also makes sure that there is no single investor who can disrupt the decision-making process in your business.

Disadvantages:

1. One of the most significant drawbacks of equity crowdfunding is giving up a percentage of ownership for financial funding. This can have a considerable impact on your company?s decision-making process in the future.

Suitable for: Startups, early-stage small businesses.

Donation-based crowdfunding

Advantages:

1. Donation-based crowdfunding is very similar to reward-based crowdfunding, except that you won?t have to hand out gifts or rewards to the donors. You just have to post some details about your social cause on an online platform, and within no time, you will be receiving fundings for your social enterprise.
2. Donation-based funding does not require you to give up a portion of your business. It does not require you to pay it back either. Donation-based crowdfunding is entirely for the community, therefore it?s a win-win situation for all.

Disadvantages:

1. You might lose your nonprofit?s credibility and reputation if caught using the donation money for other purposes.

Suitable for: Charities, Non-profit organizations, social enterprises.

Top 8 crowdfunding platforms you should know about

Our accountants have curated a comprehensive list for the most popular crowdfunding platforms that you can use:

1. Seedrs

• Seeders is an equity-based crowdfunding platform. It is popular for investing in startups.
• Ranked in the top three crowdfunding platforms with the largest value of year-to-date investments, Seedrs amounted to 12 million pounds as of 30th Sept 2017.
• Seedrs is one of the first crowdfunding platforms to get FCA approval.
• It helps gather investments for early-stage businesses.
• The platform is popular for offering financial assistance to startups through each funding stage.
• Seedrs is best for generating investments that are up to 5m.

Commission and fee: For the first 150,000 raised= 6%, for next 300,000 = 4%, for over 500,000 = 2%.

Weblink: www.seedrs.com

2. Kickstarter

• Kickstarter is a reward-based crowdfunding platform.
• It is popular among individuals who are in the entertainment and art industry.
• Kickstarter is ideal for tech and service-based business (business with subscription models).
• There is no lower or upper limit on how much investment one can raise on this platform.
• Kickstarter usually extends its financial assistance to business projects who have clearly defined goals.

Commission and fee: On every successful investment = 5%

Weblink: www.kickstarter.com

3. IndieGoGo

• IndieGoGo is a reward-based crowdfunding platform.
• It is one of the biggest crowdfunding platforms that has launched more than 800,000 campaigns.
• It is suitable for almost every type of business in every industry. IndieGoGo is ideal for raising capital for many types of campaigns like arts and films-based campaigns
• It is also suitable for raising any amount of investment.
• IndieGoGo can host multiple projects like fundraising for the treatment of cancer to startup campaigns and community projects.

Commission and fee: On successful investments=4%, On flexible funding campaigns= 9%

Weblink: www.indiegogo.com

4. Crowdfunder

• Crowdfunder is a reward-based crowdfunding platform
• It is suitable for creative, unique and fascinating business ideas and ideal for startups that do not have set goals.
• The platform uses a very similar equity-based structure like a crowd cube. However, it is specially designed to help entrepreneurs look for backers instead of investors.
• Crowdfunder is suitable for raising at least 100 or above.
• The average funding almost every pitch deck has grown since 2011 is 1500 and is still rising.

Commission and fee: Of successful investments= 5%

Weblink: www.crowdfunder.com

Video: Top 7 Crowdfunding Sites for 2020

Crowdfunding is a method that allows businesses to gather sufficient funding needed to implement their business idea successfully. The video shows 7 best Crowdfunding sites to help you choose the best one for your business.

5. AngelList

• AngelList is both an equity-based and debt crowdfunding platform.
• It is an exclusive crowdfunding platform for startups and angel investors.
• AngelList has successfully raised $700 million for startups since 2013, including giants like Uber.

Weblink: angel.co

6. GoFundme

• Gofundme is a donation-based crowdfunding platform.
• It has been one of the most popular fundraising platforms for social or medical causes.
• This platform was able to generate about $11.8 million for the victims of the Las Vegas shooting. It was also able to make $22 million for the Time?s Up Legal Defense Fund.
• It is ideal for non-profitable start-ups.
• GoFundme is the only donation-based crowdfunding platform that charges 0% platform for personal campaigns fee.

Commission and fee: Go fund charges a transaction fee of 2.9% in addition to 0.25 per donation.

Weblink: uk.gofundme.com

7. Patreon

• Patreon uses donation and reward-based crowdfunding structure.
• The site is extremely popular in the creative and entertainment industry. Creative individuals like Youtubers, podcasters, musicians, gaming creators believe that Patreon helps them keep their business running
• It is a subscription-based model that allows creative individuals to form a bonding with their fans by producing unique content for the subscribers who help fund them.

Commission and fee: The site offers three packages

• Lite = 5% of the monthly income earned.
• Pro = 8% of the monthly income earned.
• Premium =12% of the monthly income earned.

Weblink: www.patreon.com

8. Funding Circle

• Funding Circle is a debt crowdfunding platform.
• The site, founded in 2010, after the great economic recession has a valuation of $1bn now.
• The average loan amount is 60000 with a limit of borrowing up to 1 million in secured loans and 500000 in unsecured loans
• Funding Circle has been able to generate more than 550 million for businesses in the UK. Along with over $850 million for 8000 businesses worldwide.

Commission and fee: Depends on the type of loan and its term.

Consult https://www.fundingcircle.com/uk/ if you want to learn details of the fee structure.

Difference between crowdfunding, angel investors and venture capitalists

Whether you approach angel investors, venture capitalist or utilize a crowdfunding platform. It is important to understand the differences between them. The table below will help you understand the underlying differences in detail.

How to launch a successful crowdfunding campaign?

Our accountants have listed down 9 tips for conducting a successful crowdfunding campaign.

1. Share your story

Begin by letting people know who you are, what you plan to do, and where the business idea emerged from. Then get into the details like what budget you will need and why are you so passionate about pursuing it.

2. Offer incentives and rewards to interested donors

You need financial backing from the contributors. Therefore, pay attention to offering something generous in return. Like a reward or explaining the ROI?s on their investment.

3. Set a funding target

Decide how much you want to raise and set a funding goal. This will help you stay focused.

4. Utilize every marketing channel

Market your campaign by using social media, contacting bloggers and influencers. You can even host an event to build your network.

5. Keep your donors/investors updated.

Once the business starts to progress. Keep your project backers in the loop by updating them on a regular basis,

6. Earn the trust of your investors

Stay focused on your fundraising goals and take everyone into confidence. Your investors must trust you under all circumstances.

7. Present your product uniquely.

Your job is to convince people that your product is the best and the most unique.

8. Make your life easy

You should hire a manufacturer to help you with the daily operations.

9. Take customer feedback seriously.

Use customer feedback to improve your product/service.

Who are we?

Clear House Accountants are expert accountants in London providing business advisory, business support, tax, payroll along with other professional accounting services to businesses of all sizes. We specialize in providing accounting support to startups and small businesses to help them excel in their finances and get them through every stage of business growth successfully.

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