What is crowdfunding?
Definition of crowdfunding
Crowdfunding is an alternative method of raising money for a business or project through small contributions from a large number of people.
The practice of crowdfunding has increased in popularity in recent years and has revolutionised the way in which startups and businesses can overcome conventional financial barriers.
Common types of crowdfunding
Reward (non-equity) crowdfunding
Investors contribute to your fund in exchange for non-financial benefits e.g. gifts, samples of a product, or tickets to an event. In most cases, the more the investor contributes, the greater the reward they’ll receive.
Investors contribute to your fund in exchange for shares or a stake in your new business.
Primarily used by charities, this method allows an individual or organisation to raise donations for a particular cause.
Frequently Asked Questions
Should I crowdfund my business or project?
How can I crowdfund?
How long has crowdfunding been around?
What is the value of the crowdfunding economy?
If you want to raise funds for a business or project, crowdfunding could be an opportunity for you to find potential investors. However, before you launch a crowdfunding campaign, make sure it’s the right funding option for your business and that you have a strategy in place, especially given the competitive nature of the market.
There are a variety of crowdfunding platforms for you to choose from depending on your business or idea and the types of funds you’d like to raise. Be sure to do your research and consider the benefits and risks of each service carefully to find the right option for you.
The modern crowdfunding model relates to money raised by a company – or project team – through a large number of small contributions. The first recorded instance of modern day crowdfunding was in 1997 when a British rock band, Marillion, funded a U.S. reunion tour through online donations from fans. However, the earliest recorded use of the word “crowdfunding” wasn’t until August 2006, and “crowdfund” was only added to the Oxford English Dictionary in 2015.
As of 2019, the transaction value of the crowdfunding economy globally stood at £5,375.4m, with £69m raised in the UK alone.
Got questions? Ask Emily!
FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.