HomeFWJ TakeawayBusiness fundingOther types of finance for businessCrowdfunding: advantages and disadvantages

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.

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