We can advise on the advantages and disadvantages of crowdfunding. By way of overview, these are set out below:
Advantages of crowdfunding
- pitching a project or business through the online platform can be a valuable form of marketing and result in media attention;
- sharing your idea, you can often get feedback and expert guidance on how to improve it;
- crowdfunding is a good way to test the public’s reaction to your product/idea – if people are keen to invest it is a good sign that the your idea could work well in the market;
- investors can track your progress through crowdfunding – this may help you to promote your brand through their networks;
- ideas that may not appeal to conventional investors can often get financed more easily with crowdfunding;
- your investors can often become your most loyal customers through the financing process; and
- crowdfunding is an alternative finance option if you have struggled to get bank loans or traditional funding.
Disadvantages of crowdfunding
- crowdfunding will not necessarily be an easier process to go through compared to the more traditional ways of raising finance;
- if you don’t reach your funding target, any finance that has been pledged through crowdfunding will usually be returned to your investors and you may receive nothing;
- failed crowdfunding projects risk damage to the reputation of your business and people who have pledged money to you;
- if you haven’t protected your business idea with a patent or copyright, someone may see it on a crowdfunding site and steal your concept; and
- getting the rewards or returns wrong can mean giving away too much of the business to investors.
- While unsecured on the assets of the business, crowd-funders usually require personal security (guarantees) from business owners that invested money will be repaid.
Francis Wilks & Jones are experts in business matters. We can help you set up your business and provide clarification on alternative finance options.