Crowd Funding – The New Venture Capitalists

We all know times are tough, and the current economic situation is making the growth of new businesses and the innovation necessary to sustain that reputation much harder. Access to finance is problematic, the perception is that the High Street banks are not lending, and public sector cuts have meant a similar reduction in the amount of money available for grants.

The pressing need to find new and better ways to support startups and encourage entrepreneurship and community social responsibility has been answered with the global phenomenon that is crowdfunding.

What is Crowdfunding?

Crowdfunding is actually not a new invention, it has been around for hundreds of years, but has been propelled into the forefront by the explosion of social media. As users of Facebook, Twitter and LinkedIn grow, so do the opportunities to reach out for support.

The model is remarkably simple but incredibly effective, it is micro patronage, or grassroots funding; tens, 100s or 1,000s of people donate £10, £15, £50, £100 or more to ventures in return for treats, gifts, even a simple, public ‘thank you’.

There hasn’t been anything as disruptive to the funding landscape in decades, possibly even since the advent of banking.

But it isn’t a threat to banks, angels or VCs, crowdfunding is an on-ramp for businesses who need something to get them started, before anyone else would consider supporting them. Think about the student or recent graduate, or mortgage laden inventor, someone who’s created an amazing piece of technology but their debt means the banks are reluctant to lend.

This is where crowdfunding comes to the fore.

It’s a simple process – you create an exciting online pitch, tell the story of why you need the money, and why people should be a part of your journey, you create a series of compelling rewards and then you reach out to your networks to ask them to support you. It takes time and it takes effort. You need to engage your family and friends in the first instance, create a mini campaign, and work hard.

So it’s clear that crowdfunding is shifting the paradigm away from the usual sources of finance. But it isn’t just about the money.

With a crowdfunding project you get proof of concept, you can gauge the market appetite for your product or service, you have a database, a community of engaged customers who are actually paying you to start up. You can build an order book, pre-selling your product as rewards, so you demonstrate demand when you go for next stage funding. And importantly, there is no equity release, you retain complete control of your company which is essential to put you in a stronger position to negotiate with angels and VCs further down the line.

So, you might be thinking I’m well established, I don’t need money for my business. Well you can use crowdfunding for other worthwhile purposes too, there’s a huge social and community opportunity to be seized through crowdfunding.

Donor fatigue is a common problem in small communities, but with crowdfunding you can widen the donor pool and reach out to the Diaspora, people who have moved away from the area but who maybe still have family there or memories that keep them tied and supportive.

You can also engage with young people more easily – GenY are not only engaged in social media, they live it, breath it, dream it, can’t be without it, and as already explained, social is the catalyst for crowdfunding.

It also creates CSR (Corporate Social Responsibility) opportunities.

Companies whose values show a desire to support their local community and a determination to demonstrate their CSR impact in their annual report can tap into the crowdfunding model.

Employees who are given time and small amounts of money to volunteer within the community can use Bloom to raise additional funds from a wider audience.

The reach, enhanced by social networks, is much wider than simply asking local people to support and when the target is reached – or even exceeded, as often happens – the final sum can be topped up or matched by the employer; it’s a double impact for the charity or community group and allows the company to make an even bigger gesture than perhaps they could have done before.

Crowdfunding is revolutionising how we raise money, and will ultimately change the funding landscape permanently.

If you’d like more information about any of the crowdfunding opportunities mentioned here, please get in touch with us.

And if you don’t have a project of your own, please make a promise and support the fantastic projects we have on Bloom.