What is Crowdfunding?
Crowdfunding is a method of raising finance by asking a large number of people to contribute a small sum of money to finance a project. Traditionally, borrowers would need to speak to a range of lenders to raise their funds which can be very time consuming. Crowdfunding allows an individual or business to talk to thousands of people via the power of the internet. This form of raising financ
Three Types of Crowdfunding
You may think crowdfunding only comes in one form, donation crowdfunding, however here are 3 main types of crowdfunding. We will detail more on each below.
This is perhaps the most well-known form of crowdfunding. A donation or reward crowdfunding project involves people investing because they believe in the cause the project is financing. Donors will usually be driven by a personal or social motive and will expect no financial return for their donation. People tend to invest in donation crowdfunding projects as it makes them feel good about helping a cause or individual for the greater good.
Debt crowdfunding is also sometimes referred to as Peer-to-Peer (P2P) lending. This kind of crowdfunding allows individuals or businesses to lend money to each other while bypassing traditional banks. Debt crowdfunding does lead to a return on investment for investors, they will receive the money they invested plus interest back. Many also choose to invest in projects via debt crowdfunding because as well as financial benefit, they will be contributing to a project they believe in.
Equity crowdfunding can be compared to traditional investment methods but with a modern twist. As with traditional investment methods, individuals or businesses invest in a project or opportunity in exchange for equity in that project. The money invested is exchanged for shares or a small stake in the business or project. Just like traditional investment methods, the value or the shares increase or decrease depending on the success of the business or project.
What are the Advantages of Crowdfunding?
There are several advantages of crowdfunding, we’ve listed a few below but if you would like to find out more, please contact us.
- -A fast way to raise funds with minimal or no upfront fees
- - Using an online platform to pitch your business or idea can be a very valuable marketing tool and in some cases can lead to attention from the media and press.
- - If you have had problems getting traditional forms of funding, crowdfunding can be a great alternative finance option.
- - By sharing your idea online, you can gain expert advice, insight and feedback as well as gauge public interest.
What Risks are Associated with Crowdfunding?
As with all forms of raising funds, there are some disadvantages of crowdfunding which are also important to consider.
- - It is important to remember that not every project that applies to crowdfunding platforms is accepted
- - You will need to spend time creating a ‘buzz’ about your project and build some awareness before you launch it.
- - Many crowdfunding return the funds invested if the funding target is not reached, leaving you with nothing.
- - Ideas can be stolen if there are no patents or copyright on your idea, business or project.
Can Crowdfunding be used to Finance any Project?
In short yes, there are very few limitations to projects that can be crowdfunded, of course it must be legal, which is great if your project hasn’t peaked the interest of traditional investors. Some crowdfunding platforms do place a limit on the amount that can be raised through the platform, so it is important to conduct research before applying to a platform.
How can I get a crowdfunding license that can be used throughout Europe?
CreditOnline, a business based in Lithuania, can help a European business source a crowdfunding license for use across Europe. Using a single authorisaiton procedure CreditOnline will work with the Bank of Lithuania to open all European Union crowdfunding markets. This will give your business access to 450 million consumers and more than 20 million businesses. Working with CreditOnline will result in relatively low operational cost due to the single authorization procedure. Your business will also have access to a high quality Lithuanian FinTech ecosystem.
For further information on crowdfunding and how we can support your business, please contact our team.