Why crowdfunding

Our work has reviewed the available research on crowdfunding to examine whether this relatively recent method of financing new and small businesses lives up to the lofty claims of democratising investment in the 21st century. Donation-based crowdfunding platforms have certainly made it possible for lots of not-for-profit projects such as charity-based ventures and social enterprises to raise finance from philanthropic investors who are not seeking a financial return.

But in other respects, we discovered this democratisation idea can be challenged. Some types of projects are less attractive than others.

For example, consumer-oriented products and services work better than science and technology projects. The crowd also engages in herd behaviour — if there is a lack of detailed information and track record for ventures seeking funds, investors will often look at the actions of other investors when making their own investment decisions.

Second, entrepreneurs differ in their ability to access the crowd. This happens in a variety of ways. Often they need to have raised initial finance to get their project off the ground before coming to a platform.

But not everybody has access to these sources. Entrepreneurs need strong communication skills to successfully raise finance. Third, crowdfunding has not eliminated the issue of geography. A proper concept validation not only proves that people are interested in your idea but also shows that they are willing to spend their money on it. The beauty of crowdfunding investment is that since it validates the market, both investors and entrepreneurs may not have to worry about taking on as much risk.

The venture, idea, or project that is being crowd funded can be realized with just a token as a contribution from multitudes of individuals. Unlike other investments where you dump your savings into a venture that may have no sustainable market, crowdfunding allows you to test the waters without as much of an investment.

As a matter of fact, since crowdfunding is a limited time campaign, all the money that is contributed will usually be returned to all donors in the event that the campaign turns out unsuccessful. Another way crowdfunding is instrumental in reducing risk, according to investor John Rampton, a veteran crowdfunding investor, is that it reduces the cost of inventory.

Crowdfunding also allows both investors and entrepreneurs the opportunity to receive and review feedback and ideas from a live campaign. You can create opinion polls or surveys to see what people are saying about the product while the campaign is on. This real-time information allows you to make the necessary adjustments faster, positively influencing the speed at which your product gets to the market.

Another noteworthy advantage of getting feedbacks in a real-time campaign is that it helps to you build a community. By engaging and listening to the investors, you will have created a following of loyal customers even before the business has officially launched.

It is a great marketing tool that enables you to reach your target market across multiple marketing channels. Also, when your campaign gets some traction, publications may begin to jump on board and promote the campaign even further. One thing is sure, the campaign will get a wider coverage and you will get more brand awareness and attract more supporters for your idea, project, or business.

The Hub is our Knowledge Center featuring useful and inspirational articles. Filter articles by:. UOWN is a platform offering anyone the ability to invest and potentially earn money from property at the click of a button. Giving the ownership of UK property back to the people. House prices can fall as well as rise and you may not get back all of the money you invest.

Rates of return quoted on our website are estimates only and are not guaranteed. Investments are not protected under the Financial Services Compensation Scheme. Ok, got it. Don't show this warning again. Why crowdfunding is a great idea! The Hub. Why Crowdfunding Investment is a Great Idea The use of crowdfunding as an alternative source for raising capital has been fast gaining popularity among both entrepreneurs and investors over the last several years.

These are: Donation-based Donation-based is a type of crowdfunding model where people give money in support of a project or business idea. Pre-payment or rewards-based Pre-payment or reward-based crowdfunding model is one where individuals contribute money to an organization, company, or project in return for some reward. Loan based or peer-to-peer Loan based or peer-to-peer crowdfunding model is one where individuals lend money to businesses or individuals at competitive interest rates.

Equity investment based The fourth and final type of crowdfunding model is equity investment based. This can come in the form of a feature story on a popular news station, blog, or print publication, and is a great way to bring in backers outside of your personal network.

A good feature story or Twitter mention can create a powerful snowball effect, putting you in touch with major investors you might not have otherwise reached. Whether they read about your new product on a popular blog or hear about your innovative campaign from a friend, a successful crowdfund is a great way to capture new investor interest. Crowdsourcing has grown into an excellent way for entrepreneurs and early-stage companies to validate their business, find capital and early adopters, and get the exposure they need to grow.

To recap, some of the most powerful ways a crowdfunding campaign can help build more startup momentum than other financing methods are:. Social proof — The phenomenon where people follow the examples of others in an attempt to reflect the best course of action in a situation. In a crowdfunding campaign, your early backers generate your social proof—once early adopters vet and buy into your idea, others are more likely to follow suit.

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Fundable is not a registered broker-dealer and does not offer investment advice or advise on the raising of capital through securities offerings. Fundable does not recommend or otherwise suggest that any investor make an investment in a particular company, or that any company offer securities to a particular investor. Fundable takes no part in the negotiation or execution of transactions for the purchase or sale of securities, and at no time has possession of funds or securities.