Crowdfunding Explained

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It’s Day 3 of the #AtoZchallenge so it’s the letter C!

Crowdfunding Explained What is Crowdfunding?

Crowdfunding is when people buy into an idea for a product or service, often before it goes into production.  An individual or a business may wish to open a coffee shop, produce a book, film a documentary, produce a new design of a watch, launch a new food product or create a board game.  The creator will have to persuade potential backers to pre-buy the product or invest in another way within a specified time.

Reward-based Crowdfunding

Reward-based crowdfunding tends to be the most popular. This is when you use a crowdfunding website such as Fundit, Kickstarter or Indiegogo as the platform for your campaign.  You tell people about your idea in your written pitch, photos and a video and you try to entice them to pledge by offering rewards of various values.

Equity-based Crowdfunding

Equity based crowdfunding means that you ask investors to loan you money. Various crowdfunding sites have different minimum and maximum amounts, for example, Linked Finance (an Irish company) has a minimum of €5K and a maximum of €50K. The loan is usually over three years and is repayable monthly.  Investors can offer you any amount and indeed, the average number of investors for Linked In Finance loans is 143. Investors see it as a good return on their money (comparable to the interest rates they would get on their savings) and it is an alternative to a bank loan for the business. Businesses need to have been operating for at least two years and will need to show accounts.

5 Tips for Crowdfunding Success

1. Include a good video – show yourself, your passion and the product if possible. Ensure the product is shown in a positive light and share your excitement.

2. Use positive language in the written pitch.

3. Ensure you have rewards at various price points – from the very low to the very high.

4. Offer the product as a reward – it’s surprising how many creators don’t do this. If it is a show, offer tickets as one of the rewards. Offer VIP tickets as a more expensive reward.

5. Ensure you have a good community behind you between friends, family and online followers. Having a following on social media is essential.

We run a comprehensive two week online course showing you how to maximise your chances of success when you run a crowdfunding campaign.  Links to more articles about crowdfunding are here

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Posted in Crowd Funding
  • Amanda Webb

    I’d not heard of equity crowdfunding before. I’m guessing it’s for bigger money businesses? As an alternative or to compliment venture capital?

    • Lorna Sixsmith

      Depends to be honest re the size of the business. They do have to have a good track record and be in business for at least 2 years. It is seen as an alternative to borrowing from the banks too. I’ve an interview with an Irish company for the blog tomorrow for ‘E’ ;)

  • Dee Sewell

    Crowdfunding seems to be coming up in conversations a lot lately and I’ve been pointing everyone your way as you’ve some great posts on how to do it. I’m not sure it’s something I want to do but never say never and if I needed cash to get a project up and running that might interest people in I’d be referring to all your posts!

    • Lorna Sixsmith

      Thanks Dee – I think a lot of people underestimate the preparation and level of hours that are required as it is the success stories that are emphasized. Having said that, it is worth all the work as the benefits are so much more than financial :)

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