Equity vs Rewards Crowdfunding
- Investors invest in your business in return for equity, a share.
- Focused on platforms Crowdcube and Seedrs
- Investors can be accredited or everyday consumers e.g. family or friends
- Create brand ambassadors if the company becomes profitable
- Control over offering: set own terms, including valuation and how much you sell, greater freedom, no restrictions set by venture capital firms
- Investors can serve as advisors to your business, some may have expertise within the field
- Easier access to capital, a larger number of potential investors
- Platforms pool money into one single investment which makes it easier to manage than contacting all investors
- Crowdfunding platforms charge a percentage of funds raised for their services including any additional payment processing fees e.g. Crowdcube charges 7% (exc.VAT) on the amount you successfully raise/ a completion fee is also applied on average 0.75%-1.25% of all funds raised.
- Investors invest in your business in return for item of value (incentives)/ the more an investor invests, the greater the reward will be
- Specific tiers will need to be generated, offering different rewards at each tier
- Focused on platforms Kickstarter, Indiegogo
- More focused on a specific project, product, game or franchise, a way to test consumer market if the product is worth the hype
- Raising money without selling off an equity stake in your business
- Gain brand awareness and establish a customer base
- Great way to lay the groundwork for your next innovative project as well as test existing product
- Depending on what rewards you’ll offer. You’ll need to be successful in delivering whatever you’re producing to donors.
- Fees charged with platforms e.g. Indiegogo charges 5-8% on all funds raised for your campaign including transaction and transfer fees/ Kickstarter charges 5% plus 3-4% processing fee
- Kickstarter only allows creative campaigns that must fall under music, games, publishing, film, art, comics and illustration, food & craft, design & tech, and requires you to give physical rewards to investors
- Rules to adhere to set by platforms