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Unlock This CourseCrowdfunding has revolutionised how businesses raise money. Instead of asking one bank or investor for a large sum, businesses can now ask hundreds or thousands of people to contribute small amounts online. It's like having a massive digital collection tin that people from around the world can drop money into!
This method has become incredibly popular because it's accessible to almost any business with a good idea and an internet connection. From tech gadgets to creative projects, crowdfunding has helped launch some of today's most successful products.
Key Definitions:
A business creates a campaign on a crowdfunding platform, sets a funding target and offers rewards or equity in return for contributions. People browse the platform, find projects they like and pledge money. If the target is reached, the business gets the funds to develop their idea.
Not all crowdfunding works the same way. There are four main types, each with different rules and expectations for both businesses and backers.
Backers receive products or perks in return for their money. This is the most common type, used by platforms like Kickstarter and Indiegogo.
Backers receive shares in the company. They become part-owners and may receive dividends if the business succeeds.
Also called peer-to-peer lending. Backers lend money and expect it back with interest, like a traditional loan but from multiple people.
This is the most popular type for new businesses and creative projects. Companies offer different reward tiers - the more you pledge, the better the reward. For example, pledge £10 and get a thank-you card, pledge £50 and get the finished product, pledge £200 and get the product plus exclusive extras.
The beauty of this system is that businesses can test market demand before manufacturing. If people won't back your campaign, they probably won't buy your product in shops either!
Pebble raised over £8 million on Kickstarter in 2012 for their smartwatch - one of the most successful campaigns ever at the time. They offered early bird pricing and exclusive colours to backers. The campaign proved there was massive demand for smartwatches, years before Apple released theirs. However, Pebble eventually failed as a company, showing that crowdfunding success doesn't guarantee long-term business success.
Crowdfunding offers unique benefits that traditional financing can't match. It's not just about the money - it's about building a community around your product.
If people back your campaign, you know there's real demand for your product. This reduces the risk of launching something nobody wants. It's like getting thousands of pre-orders before you even make the product.
Successful campaigns generate media attention and social media buzz, giving free publicity worth thousands of pounds.
Backers become your first customers and often your biggest fans, helping spread word about your business.
Unlike loans, you don't have to pay the money back or give up company control (in reward-based crowdfunding).
Crowdfunding creates a special relationship between businesses and customers. Backers feel invested in your success because they helped make it happen. They'll often provide feedback, share your posts on social media and recommend your products to friends. This community can be more valuable than the money itself.
Crowdfunding isn't a magic solution. Many campaigns fail to reach their targets and even successful ones face significant challenges.
Most crowdfunding campaigns fail to reach their targets. On Kickstarter, only about 36% of projects succeed. This means businesses need backup plans and shouldn't rely solely on crowdfunding.
Running a campaign requires constant promotion, updates and communication with backers. It's like a full-time job for several months.
Your idea becomes public, meaning competitors can see and potentially copy it before you launch.
You must deliver what you promised to backers, often with tight deadlines and limited experience in manufacturing.
Crowdfunding platforms charge fees, typically 5-8% of funds raised, plus payment processing fees. If you raise £10,000, you might pay £800 in fees. You also need to budget for rewards, packaging and shipping costs, which can eat into your funding significantly.
The Coolest Cooler raised over £10 million on Kickstarter in 2014, becoming one of the most funded projects ever. However, the company struggled with manufacturing costs and delivery delays. Many backers never received their coolers and the company faced legal action. This shows how crowdfunding success can become a nightmare if you can't deliver on promises.
Different platforms suit different types of projects. Choosing the wrong one can doom your campaign before it starts.
Best for creative projects and innovative products. Uses "all-or-nothing" funding - you only get money if you hit your target.
More flexible than Kickstarter. Offers both all-or-nothing and flexible funding options. Good for tech products and social causes.
UK-based equity crowdfunding platform. Investors buy shares in your company rather than receiving rewards.
Successful campaigns share common elements: compelling videos, clear value propositions, realistic funding targets and strong social media presence. The most important factor is preparation - successful campaigns often spend months building an audience before launching.
Timing matters too. Launching during busy periods like Christmas or summer holidays can reduce visibility. Tuesday to Thursday launches typically perform better than weekend launches.
Crowdfunding works best for certain types of businesses and products. It's not suitable for everyone and understanding this can save time and disappointment.
Consumer products, creative projects, innovative technology, social causes and businesses with strong visual appeal tend to do well. Products that solve obvious problems or create excitement work best.
Service businesses, B2B products, complex industrial equipment and businesses requiring large ongoing costs struggle with crowdfunding. If you can't easily explain or demonstrate your product, crowdfunding may not work.
This card game raised over £6 million on Kickstarter in 2015, becoming the most-backed project in Kickstarter history at the time. The creators used humour, simple gameplay and The Oatmeal's existing fanbase to drive success. The game was easy to understand, affordable to produce and had broad appeal - perfect for crowdfunding.
Before choosing crowdfunding, consider alternatives like bank loans, angel investors, or bootstrapping. Each has different requirements, costs and implications for your business. Crowdfunding might seem easier, but it requires significant marketing skills and public relations expertise that many entrepreneurs underestimate.