Crowdfunding- What is it all about?

 

Crowdfunding -
What is it all about?

 

According to a report published by Nesta in May, crowdfunding in the UK generated approximately £200 million in 2012 and that figure looked set to grow significantly this year.

 

There have been some huge crowdfunding successes in the social enterprise sector to date. Last month, HiSbe's ethical supermarket in Brighton raised over £30k to re-fit their existing shop, expand their product range and pay the supermarket's employees a proper wage. Pants to Poverty, an organic underwear brand, raised £58,365 to continue and develop their work and that of their partners across thousands of farms in India, and the Converging World's wind turbine project raised £188,415 (over 2 crowdfunding campaigns) to further the reach of their work - just three examples of crowdfunding success
for social ventures.

 

The growth of the sector coupled with the increasing difficulty of raising funds through mainstream channels makes crowdfunding an attractive option for social enterprises looking for the funds they need to either start up or scale up, but it also offers a more democratic option.

 

So how does it work?

 

Crowdfunding, in a nutshell, is a way to raise money by asking a large number of people (or 'crowd') for small amounts of money ('funding') to help reach an overall target. The target should enable the project owner to carry out a particular activity or achieve a specific outcome rather than be put into a general funds pot.

 

The most common type of crowdfunding is rewards-based. Project owners offer various rewards to people for supporting their project. The rewards should be as unusual and exciting as possible (whilst not incurring too great a cost to deliver) and become increasingly special the higher the contribution in order to act as an added incentive for people to back the project.

 

Other types of crowdfunding includeequity-based crowdfunding whereby  investors receive a stake in the company in return for backing the venture and lending-based crowdfunding. Loans always raise more money on average than the rewards model and therefore can be a better option for social enterprises looking to raise higher sums if appropriate.

 

Building a crowd of supporters around a project through a crowdfunding campaign can be invaluable for reasons other than just the money. Where supporters contribute to a project, they are often much more engaged in the project's fundraising efforts and work than if they had just made a one-off donation. They feel part of the project and, particularly for social
enterprises working closely with local communities, that support can be priceless. A crowdfunding campaign can also provide a platform to ask for other kinds of support - time, expertise or in-kind contributions and projects can go back to their crowd for feedback and ideas to help make their work a success. Another huge plus of running a successful campaign is that it helps to demonstrate credibility. Raising money through crowdfunding shows that there is support for the project and this can demonstrate that there is a real need for the work and encourage institutional funders to support the project in the
future.

 

To find out more about how crowdfunding works, visit www.crowdingin.com and for examples of crowdfunding campaigns, both past and present, visit www.buzzbnk.org, a crowdfunding platform specialising in helping social ventures to raise start-up or growth capital.