Posted on: 19 August 2014

Many of us have perhaps heard about crowdfunding for business. But the start-ups and micro-SMEs that are considering using it to raise funds need to fully understand it before diving in. That way it is more likely to reap the rewards you’re after.

Crowdfunding is taking off in the UK for a variety of reasons, the most popular being lack of available funding from banks. So with the rise of social media it makes sense that businesses are turning to their networks to raise money instead.

However, crowdfunding isn’t something you can commit to with the bare minimum of thought and preparation. There are a multitude of signs that you may not be ready to jump on the crowdfunding bandwagon. Here are a few to get you started.

1. Instead of researching the many other sources of finance that are available to small businesses in the UK, you’ve decided to raise money through crowdfunding because you think that’s what everyone does these days.

The reality is that there are lots of options for accessing funds, of which crowdfunding is one. Ruling these out before seriously considering them could result in you spending more time and money on getting the money than you needed to.

2. When quizzed, the only difference that you can remember between reward, debt and equity crowdfunding is that one of them usually involves giving others a stake in your business (although you’re not sure which one).

Understanding what sorts of project or business suit each type of crowdfunding will help make sure you pick the one that has the best chance of raising the funds you need.

3. You think that crowdfunding is a way of increasing the size of your network rather than something that relies on having a strong one in the first place.

Building up a solid group of supporters before you start will help persuade others to join in once you launch your campaign. You can measure your influence and how it’s improving using the Klout score.

4. You’ve chosen a crowdfunding platform that you like the look and feel of, but you haven’t checked what your friends, relatives and potential customers think about it.

Picking a platform that your target audience will like is much more important than what you like. You can read each platform’s FAQs and even call them up for a chat to get a better feel for whether they’re right for you.

5. The time you’re spending on your crowdfunding campaign is having an adverse effect on the day-to-day running of your business.

If you can’t keep your business going while you run your crowdfunding campaign, you are not going to be able to sustain the momentum once you’ve raised the funds. This is just as important as the campaign itself as it keeps your customers and the market engaged.

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The risks of crowdfunding and how to avoid them

Business Guidance

The risks of crowdfunding and how to avoid them

19 August 2014

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