Do not invest more money than you can afford to lose.
The concept of crowdfunding has been around for centuries, but it has gained momentum with the popularity of the Internet. Crowdfunding is a type of financing where funds are provided by a large number of investors, i.e. crowd in crowdfunding. Individuals and enterprises use this type of financing for personal projects, to achieve corporate growth and expansion, as well as for funding social activities. Individuals, organisations, and businesses can set up crowdfunding projects, create their crowd and collect payments to fund their idea.
The number of crowdfunding websites is endless, with new ones launching every day. There are several different types of crowdfunding. Following are a the most popular of them:
- Donation-based – donors offer money for nothing in return. This type of crowdfunding is mainly used for charitable projects.
- Reward-based – investors support a person or project with a small amount in exchange for which they receive a tangable reward. Very popular among creative crowdfunding websites. Rewards are often the product artists create – a record, a book, etc.
- Equity-based – investors receive a piece of equity (i.e. shares) in the company which they help finance. This is often used by growing companies.
- Loan-based – Investors provide loans which are later returned with an earned interest.
Although the UK market is significantly smaller than the US one, it still attracts a large number of investors. Following is a list of some of the key crowdfunding websites in the UK:
Zopa (www.zopa.com) – Since 2005 when the website was launched, about 150,000 people have received £1.62 billion in personal loans. The website uses a peer-to-peer (P2P) lending model. The average loan size is £7,300,but loans could be as low as £10 or as high as £1 million.
Funding Cirlce (www.fundingcircle.com/uk) – Funding Circle is a loan-based crowdfunding website. It has helped businesses borrow from lenders about £1.5 billion in total. Loans range from £5,000 to £1.0 million. The website has 51,495 registered lenders and 15,000 businesses that borrow.
Crowdcube (www.crowdcube.com) – Crowdcube is one of the leading crowdfunding websites in the UK. It has helped start-up, early stage and growth businesses raise more than £184.6 million through equity and debt investment options. The website has nearly 300,000 registered investors. It is used by entrepreneurs to raise funding from their own network of friends, family, customers, as well as from strangers.
Seedrs (www.seedrs.com) – Seeders is another of UK’s leading equity crowdfunding websites. Since its launch in July 2012, more than 380 funding campaigns have been closed with a combined investment of more than £150 million. In H1 2016 alone, the website had 78 funded deals, up from 55 a year earlier and 43 in H1 2014.
SyndicateRoom (www.syndicateroom.com) – This equity crowdfunding website has helped raise some £58.7 million. The site has a minimum investment requirement of £1,000. Meanwhile, businesses that seek financing, are required to have a minimum equity funding round of £150,000, 25% of which to be already committed in addition, companies have to offer SyndicateRoom investors same share class and price as lead investors.
Crowdfunder (www.crowdfunder.co.uk) – Crowdfunder is the sister company of Crowdcube. This website offers three different crowdfunding models – through community shares, rewards, and equity crowdfunding. Crowdfunder users have raised nearly £25.3 million in total.
Spacehive (www.spacehive.com) – This crowdfunding platform is especially designed for civic projects, or “neighbourhood improvement projects” as it refers to it. As such, the website is donation-based. It even helps projects find big backers like businesses and councils to alleviate the fundraising. Once a project’s target amount is reached, the amount is collected from investors, it gets funded and can be implemented. The total value of Spacehive-funded projects amounts to £5.1 million and the average project value is £26,500.
Buzzbnk (www.buzzbnk.org) – Buzzbnk presents itself as the UK’s first crowdfunding and peer-to-peer lending platform for social enterprises and charities. Buzzbnk merged with Trillion Fund Ltd November 1, 2014. Buzzbnk.org continues after the merger on its mission to help social enterprises and charities raise the funding and support they need. More than 141 projects have received funding through Buzzbnk of a combined nearly £1.1 million.
InvestingZone (www.investingzone.com) – The website uses an equity-based crowdfunding model. It is mainly used by startups and other unlisted companies that seek financing. InvestingZone, which is majority owned by businessman Jon Moulton, merged in February 2016 with Acceleris, a UK-based corporate finance boutique that is part of Seneca Group (an Investment Management and Corporate Advisory services group which specialises in the SME sector).
ShareIn (www.sharein.com) – ShareIn advertises itself as providing a full crowdfunding “turnkey” solution offering both in-house technology and compliance services. Individuals and businesses can either raise funds on their own website by using ) or to use a white label crowdfunding platform. The company also has Appointed Representative Services for equity crowdfunders.