Which Crowdfunding site should I use?
With Banks reluctant to approve lending requests many companies are finding it hard to get funding for projects so you might consider crowdfunding as an option having read of its growing popularity. In 2014 £1.74 bn was lent via crowdfunding and the number of web sites offering crowdfunding is now well over 450.
But where do you start? Is it safe?
Let`s firstly look at what crowdfunding is:
Crowdfunding is the practice of funding a business via contributions from a large number of people over the internet. Investors typically offer from £10 upwards .The crowdfunding websites are the crowdfunding platforms that brings investors and business together. They charge a fee of around 7% of total funded.
There are 3 ways to obtain funding:
Loans – often called peer 2 peer (P2P)
Loans are the most popular way of getting funding, but not all platforms offer this option. In addition the success of your funding relies on sufficient investors on that web site, so a site with thousands of investors will offer more chance of success than one with hundreds.
Some platforms vet applications, if approved a credit risk is applied that leads to investors understanding the risks and an appropriate interest rate to set. Others do not do this leading to investors not having a good understanding of the risks involved.
Who do you trust?
Most crowdfunding opportunities fall outside the Financial Services Compensation scheme. As an investor you are making your own assessment of opportunity and risk. Platforms that are authorised and regulated by the Financial Conduct Authority must also comply with a number of rules with respect to how their customers are treated. But not all platforms will be authorised by the FCA.
However in the UK an organisation called UK Crowd Funding has been set up that has agreed a code of practice to self-regulate platforms. Its members must follow the code of practice, indeed it has removed members recently for failing to comply with this code.
If a platform is not a UK Crowd funding member then you should research carefully before using the site.
The main risks in crowdfunding are to the investor, if the platform goes bust you may not get your money back, unless it is a UK Crowd Funding member when investor’s funds are held in clients’ accounts. You also need to understand the risks for the business seeking funding, some platforms only allow sophisticated investors for this reason, others will credit check each pitch and assign a risk rating to it.
Each platform offers different options, some only rewards, others rewards and equity and some just loans. There are those offering start-ups funding and others want business to be established over 2 years. There are specialist ones as well offering property only, charity and community projects and energy projects.
In addition they all have different fees and terms & conditions.
So when looking at which platform to use I would start with the UK Crowd Funding web site and check out the list of members, this can however take some time to review, fortunately I have done this for you so give me a call and I can help you find the right platform and assist with how you go about a successful pitch.
Not only is your pitch important but also how you tie social media into the pitch and we can also help you with this as well as the financial information you will need for the pitch.
In summary obtaining funding via crowd funding is a viable option, use the UK Crowd Funding member’s web site and talk to me beforehand.
Written by Gavin Bray, Banking Consultant, Ad Valorem Accountancy Services Ltd