Crowdfunding investment introduction
Crowdfunding is the process of seeking financial support to back your project from a large number of people. As a result, it goes beyond the traditional modes of financial resources provided by banks, business angels or venture capital firms. Crowdfunding is an open call through the internet for the provision of capital goods. Above all, the prime purpose of crowdfunding is that it enables individuals to bring their innovative creations to life, and build a customer base.
Different types of crowdfunding exist, all depending on what investors receive in exchange on their contribution. For instance, what the investors receive can be equity shares, a product, service or other non-monetary rewards. These rewards are more or less symbolic or carry a particular interest rate.
Crowdfunding Investment – Which Crowdfunding platform is right for you?
Choosing the right crowdfunding platform is important. Similarly, it is essential that you work with the right crowdfunding platform for your product/service. Take a look at the following to see what is most suitable for you and your product/service.
Crowdfunding Investment – Equity
For startups and early-stage businesses, equity crowdfunding enables them to raise capital from a wide and diverse pool of investors, often alongside institutional investors (such as venture capital firms and family offices) and angel investors. The most common platforms to use for an equity-based campaign is Crowdcube or Seedrs.
Crowdcube – is an equity crowdfunding platform. This is where organisations sell shares of their business and investors purchase the shares knowing they will benefit in the long term. For a Crowdcube campaign a strong product/business idea is needed, a detailed plan as well as having the correct campaign promotion (including: Pitch, Email Campaigns and Social Posts) and you need to ensure that these promotions are being done efficiently.
The products/services that get funded the most on Crowdcube are technology, food and beverage and consumer goods sectors. So if you’re in this sector then there’s a high possibility that your campaign will be a success.
Seedrs – is also an equity based platform. For Seedrs you need to decide how much you want to raise and the valuation for your business. You need to tell your story in your campaign so investors have a better understanding of your business and idea. Campaign marketing will also be required including: adding creative visuals and videos, email marketing, social media posts etc. The most common products/services that get funded on Seedrs is Technology and Consumer Goods.
Crowdfunding Investment – Rewards
It promises investors that they will be rewarded for contributing to the investee’s campaign. In other words, people investing in an idea they believe in, to then receive something in return, most of the time is non-monetary, tends to generate attention from interested investors. Offering this type of campaign encourages individuals to invest as they know they will benefit by receiving something in return. The largest rewards-based crowdfunding platforms are Indiegogo and Kickstarter as they had many successful campaigns.
Kickstarter is a reward based platform. For Kickstarter you need a project that you’re going to bring to life and a funding goal. For Kickstarter campaigns it is ‘all or nothing’, meaning you have a set number of days for your campaign and you have to reach your goal. This always gives backers incentive to pledge more. The difference with a rewards campaign, you need to have your list of rewards that you would like to offer your investors. You will also need the following for your campaign, just like the others: a pitch, social ads, social posts and email campaigns. The most common products/services that be successfully funded are Technology, Music and Art.
Indiegogo is also a rewards based crowdfunding platform. It requires businesses that wish to crowdfund to have the following: a pitch, perks and a perk strategy and a short description of the organisation so everyone knows what you’re all about. You will also need the standard, social ads, social posts and email campaigns. For Indiegogo the most common type of campaigns that get funding are: Technology and Music.
Crowdfunding Investment – Donation
They assist charity projects in finding their funding. They offer no rewards to contributors apart from the satisfaction of donating to a worthy cause. The main platforms used for donation based campaigns are Just Giving and GoFundMe.
JustGiving – is a donation based campaign. Donation based platforms don’t offer anything for the individual investing in the campaign apart from the satisfaction you get from helping a worthy cause. Because JustGiving is a donation based platform Charities are the main type of campaigns that get funding, as well as campaigns referring to disabilities and health.
GoFundMe – is a donation based campaign. So they don’t offer anything for investors apart from the satisfaction of donating to a worthy cause. Due to GoFundMe being a donation-based platform it is mainly for charities, as well as personal fundraising (e.g. for a person with a disability/being homeless) etc.
Crowdfunding Investment – Lending
When a large group of investors collectively decide to make a mall contribution to an individual or business looking to raise funds, and in return, the loan is paid back with interest over time. Funding Circle and Zopa are two of the most popular peer-to-peer lending platforms.
Funding Circle – It is a peer-to-peer lending marketplace allowing investors to lend money directly to small and medium-sized businesses. A custom solution to businesses who prefer to get funds quicker and are confident they will have enough revenue to cover the debt. Funding circle connects creditworthy businesses looking for funds with people and organisations with money to lend.
Zopa – A online personal finance peer-to-peer lending site based in the UK. It is a money lending service that allows lenders and borrowers to deal directly with one another. All this without having the banks acting as middlemen. Zopa gives access to simpler, better-value loans and investments. Once the application approvals are complete, investors will queue and match to your project and afterwards will receive repayment with a monthly interest.
Crowdfunding Investment – Popular Categories
It is important to note that you must have a clear idea of which market your project belongs to. You also have to note, what makes it important and worth of people’s support. Over the years the most common categories to garner attention were: Watches, Outdoor Gear, Technology, Household items and Travel Accessories. This best applies to the platforms of Equity and Reward-based campaigns. It’s all based on all the crowdfunding platforms, but looking from the perspective of each one, the results may vary.
Crowdcube best performing categories are: Food & Beverage, Technology, Consumer goods and Fintech.
Seedrs saw a great success in crowdfunding campaigns in sectors such as: Automotive, Manufacturing, Consumer goods and Food & Beverage.
Indiegogo had tremendous success with Theatre, Film & video, Technology and Design.
Kickstarter, the largest crowdfunding platform worldwide, published their statistics of their most popular crowdfunding categories. They’ve garnered the most attention and success from projects in the following sectors: Games, Design, Technology and Film & Video.
How Drop can turn your idea into a success story
- Immediate feedback on whether your business is suitable for crowdfunding
- Access to Drop Studio’s Crowdfunding Accelerator Service – available for Crowdcube approved campaigns only
- Crowdfunding strategy and planning
- Marketing strategy and marketing content – social media posts, ads, emails
- Management of social media profiles, ads and email marketing
- Crowdfunding video production – treatment, script writing, filming, editing with animation, promotional content
- Ongoing crowdfunding support throughout the whole campaign