Posted on: 19 August 2014

Crowdfunding can offer a lot for a micro-SME, but it isn’t for everyone.

Before a business dives into the exciting but time consuming world of profiling their project, securing supporters and then implementing their idea, taking time to understand the advantages and disadvantages of crowdfunding up front could save a lot of time and energy down the line.

The following table will help any micro-SME considering crowdfunding to decide if their business, their idea and the timing is right for them to go pursue it as a source of funds.

What are the advantages and disadvantages of crowdfunding
Advantages of crowdfunding Disadvantages of crowdfunding
Businesses set a target amount that they want to raise for their project. If this is hit they get every penny. “Crowdfundable projects are visible, finite and understandable. If your project isn’t all three, it’s unlikely to succeed.”  Anne Strachan, Crowdfund UK
Successfully crowdfunded projects can get huge amounts of attention, on social media and elsewhere, which can help them grow beyond what the money raised alone could have done. If the target amount isn’t reached, potential investors get their money back and the business goes away empty handed
Pitching a project or business through crowdfunding can be a valuable form of marketing Failed projects risk damage to the reputation of the business and people who have pledged money to them
Some businesses raise £100,000s in just a few days, giving them almost instant access to funds Such a public display of an idea risks others copying it
As part of the crowdfunding process the business can get feedback about their idea and how to improve it Businesses need the time and money to gear up the community, publish their project and bring in investors before any money is raised
Crowdfunding is great for niche ideas that wouldn’t otherwise have access to a receptive audience or funds A strong, established existing network is vital to the success of a project. Without it, even the best ideas don’t get backing
As a result of the crowdfunding process, a business’s audience becomes its most loyal customers Getting the rewards or returns wrong can mean giving away too much of the business to investors
“A successful crowdfunding campaign can serve as a positive signal for other funders and can help you attract more funding or funding at better terms.” Liam Collins, Nesta “A company that has a limited network, no digital or social media presence, or a very complicated product will find it harder to crowdfund.” Jude Cook, ShareIn

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