Top Crowdfunding Platforms for Businesses
Everyone has, at some point, imagined creating their own business empire. However, this ideal becomes a forgotten fantasy once the necessary funds and other investments are realised.
Online crowdfunding sites have simplified raising money for your company concept, nonprofit cause, or personal needs. Finding a crowdfunding platform that meets your demands is essential since it could affect how successful your project is.
Let’s start by covering all the information you require regarding crowdfunding for businesses, including what it is, how to conduct effective campaigns, and every essential platform available today.
What Is Crowdfunding?
Before getting into how you may utilise crowdsourcing to raise money for your business, let’s quickly review what crowdfunding is.
As the name suggests, crowdfunding is having many people (a “crowd”) contribute money to a business or project. As a result, small firms now turn to a bigger pool of possible investors for the funding they require to advance their operations rather than obtaining investment from one or two major sources.
But that capital doesn’t always come for free. In exchange for their investment, investors expect something in return—and what that “something” will depend on the crowdfunding type a small business decides to use to raise capital.
Crowdfunding vs Traditional Funding
The traditional funding method is quite different from crowdfunding. Businesses are usually required to approach an institution with some form of security to access funding or with a business which has achieved some level of success to attract a wide pool of wealthy investors, banks or venture capitalists. The primary problem with this strategy is that it prevents one from outlining the complete business concept in front of an audience of investors. Failure to pitch the idea to the appropriate investor at the proper moment could result in a loss of both time and money for the business owner.
The crowdfunding platform help save entrepreneurs a tremendous amount of time and money. It enables individuals to develop, present, and share their pitch online. The various platforms provide solutions for businesses at different stages of their business cycle. Crowdfunding gives a chance to business owners to present their business plans to a massive audience. Crowdfunding not only helps you save money and time. Additionally, it aids in identifying the ideal investor for your company. While allowing a big group of investors to put small amounts of money up, the risk for the investor is lessened. Ensure that your business plan lands in the hands of the right investor. If you need help preparing for crowdfunding, speak to a startup accountant.
If you are considering starting a business, start with our startup guide.
Over £34 billion has reportedly been raised internationally using crowdfunding platforms, according to Fundly. This has exceeded the amount raised by peer-to-peer lending, which currently stands at £25 billion. Statistics reveal that over £5.5 billion have been raised through reward and donation-based crowdfunding platforms. In comparison, equity-based crowdfunding has enabled fundraising of £2.5 billion.
Equity crowdfunding platforms involve small business owners selling shares or equity in their company to obtain funding.
Advantages and Disadvantages of Equity Crowdfunding
- Equity crowdfunding, compared to other crowdfunding methods. It can generate a large amount of funding for your startup.
- Without having to deal with so many investors separately. Crowdfunding platforms help entrepreneurs deal with several investors as a single investor. Thus, saving entrepreneurs the trouble of simultaneously dealing with suggestions provided by multiple investors. It also ensures that only one investor can disrupt the decision-making process in your business.
- One of the most significant drawbacks of equity crowdfunding is giving up a percentage of ownership for financial funding. This can considerably impact your company’s decision-making process in the future.
Suitable for: Startups and early-stage small businesses.
Rewards crowdfunding is the most commonly known form of crowdfunding, popularised by platforms like Kickstarter. In this model, investors contribute funds and receive rewards, such as products, experiences, or services.
Advantages and Disadvantages of Rewards-based Crowdfunding
- Unlike equity-based crowdfunding, you don’t have to give up a piece of your business that could one day be valuable. You will be given funding for a gift or incentive far less expensive than the share you forfeit or the principal interest you must repay. When sending the contributors their promised presents, though, you might run into a problem. However, the advantages exceed the drawbacks.
- There are more reasons than just financial gain for why so many business owners are turning to reward-based crowdfunding. Before your product launches, it also aids in building a following. When entrepreneurs unveil their goods for online fundraising, they receive feedback that boosts their confidence in their business idea. One can determine whether a product will be well-received by evaluating the response from the general audience.
- Even if you can raise money for your product or idea, your business is not guaranteed success. There have been several successful fundraising campaigns in the past that went bankrupt due to mismanagement. Moreover, another reason may be the challenge faced when one has to develop and ship the product. This is a challenging task, especially for startups.
Suitable for: Creative, IT and manufacturing businesses and creative freelancers who want to raise money for their equipment.
Donation crowdfunding is prevalent among non-profit organisations and local businesses. It entails investors donating money to support companies without any expectation of repayment.
Advantages and Disadvantages of Donation-based Crowdfunding
- Donation-based crowdfunding is very similar to reward-based crowdfunding, except you won’t have to hand out gifts or rewards to the donors. You just have to post details about your social cause on an online platform, and within no time, you will receive funding for your social enterprise.
- You don’t have to give up any of your company to receive cash from donations. Additionally, you are not required to repay it. Donation-based crowdfunding benefits the community as a whole, so it benefits everyone.
- You might lose your nonprofit’s credibility and reputation if caught using the donation money for other purposes.
Suitable for: Charities, Non-profit organisations, and social enterprises.
Debt crowdfunding operates similarly to traditional small business loans. Instead of borrowing from a bank, businesses borrow funds from individuals or small groups of investors. The terms resemble a conventional loan, including an annual percentage rate and a defined payment schedule.
Advantages and Disadvantages of Debt Crowdfunding
- Getting the necessary loan amount from a bank is a rare occurrence. However, debt crowdsourcing enables you to collect several tiny sums from numerous investors. Thus, a sizable pool of prospective investors on a single platform immediately increases the possibility of rapidly and easily obtaining finance. Furthermore, the interest payment is typically less than you would have to reimburse the bank.
- Although debt crowdfunding saves several trips to the bank, you must remember that it’s another loan that comes with the stress of paying it back eventually.
Suitable for: Startups and early-stage businesses.
Peer-to-peer lending involves borrowing from multiple individual investors, resembling a bank loan. Investors lend money to businesses and receive their principal along with interest payments.
Advantages and Disadvantages of Peer-to-peer Lending
- Peer-to-peer lending provides borrowers with an alternative funding source, especially for individuals or small businesses that may have difficulty obtaining loans from traditional financial institutions.
- P2P lending platforms often offer competitive interest rates compared to traditional lenders, connecting borrowers directly with individual lenders and eliminating intermediaries.
- The online nature of P2P lending platforms enables borrowers to apply for loans easily and receive funds quickly, often with minimal paperwork.
- Higher Interest Rates: While P2P lending can offer competitive rates, borrowers with less favourable credit histories or riskier profiles may face higher interest rates than traditional lenders.
- Limited Loan Amounts: P2P lending platforms may have maximum loan limits, which could be insufficient for borrowers seeking larger sums of money.
Suitable for: Borrowers with limited credit history, Small business owners and entrepreneurs, Individuals seeking lower interest rates, People in need of quick access to funds
Profit-Sharing / Revenue-Sharing
In profit-sharing or revenue-sharing models, individuals fund a project and receive future profits or revenues for their investment.
Advantages and Disadvantages of Profit-sharing / Revenue-sharing
- Shared Risk and Reward: In profit-sharing/revenue-sharing models, both parties involved, such as investors and entrepreneurs, have a vested interest in the venture’s success. This alignment encourages collaboration and mutual support.
- Flexible Terms: Profit-sharing/revenue-sharing agreements can be customised to suit the parties’ specific needs, allowing for a range of sharing ratios and terms.
- Potential for Higher Returns: Investors participating in profit-sharing/revenue-sharing models can earn higher returns if the venture performs well, as their income is directly tied to the business’s profitability.
- Uncertain Returns: Profit-sharing/revenue-sharing models may result in unpredictable returns for investors, depending on the venture’s profitability. If the business underperforms, investors may receive little or no return on their investment.
- Limited Control: Investors in profit-sharing/revenue-sharing models typically have limited decision-making authority, as the entrepreneurs or business owners retain control over the operations and strategic direction of the venture.
Suitable for: Small Businesses and Startups, Contractors and Freelancers, Joint Ventures and Partnerships, Nonprofit Organizations
Hybrid crowdfunding models incorporate elements from different crowdfunding approaches, combining various aspects to suit the needs of the business or project.
Advantages and Disadvantages of Hybrid Models
- Hybrid models combine different financing mechanisms, allowing businesses to access capital from multiple sources, potentially reducing reliance on a single funding method.
- Hybrid models can be customised to fit the specific needs of a business, combining the advantages of different financing mechanisms to optimise funding terms and structures.
- By diversifying financing sources, businesses can reduce the risk associated with relying solely on one type of funding, spreading the risk across different investors or lenders.
- Hybrid models can be more complex to set up and manage than a single financing method, requiring careful coordination and legal considerations to ensure compatibility and alignment between stakeholders.
Suitable for: Franchise Businesses, Retail Businesses, Manufacturing and Production
Optimal Approaches to Crowdfunding for Business
Let’s move on to how to make crowdfunding beneficial for your company now that you know what it is (and the various varieties). When using crowdfunding to collect money for your company, you should keep a few best practices in mind.
- Choose the Right Crowdfunding Site
- Develop a Clear Strategy to Attract Investors
- Maintain Effective Communication with Investors
- Avoid Overpromising and Underdelivering
Choose The Right Crowdfunding Site
Not all crowdfunding sites are the same. Each platform has its focus, such as fundraising, product launches, or equity crowdfunding. To increase your chances of success, research different crowdfunding sites and select the one that aligns with your needs and business goals.
Develop A Clear Strategy To Attract Investors
Before launching your crowdfunding campaign, take the time to define a comprehensive strategy. Identify the type of investors you want to target and devise a marketing plan to grab their attention. Clearly articulate why investors should choose your business and how it will benefit them. A well-defined strategy increases your chances of capturing investor interest.
Maintain Effective Communication With Investors
Crowdfunding differs from traditional investing as you may have numerous individual backers investing small amounts. It’s crucial to keep these investors engaged and informed about the progress of your business or project. Regularly communicate updates, especially if you use rewards crowdfunding for product development. Share visual updates like photos and videos, and provide realistic product delivery timelines to satisfy your investors.
Avoid Overpromising And Underdelivering
While the possibilities of crowdfunding are exciting, paying attention to yourself is important. Set realistic fundraising goals that provide capital for your project or business. Don’t accept more capital than you can effectively utilise or promise rewards you cannot deliver. Similarly, if using equity crowdfunding, be mindful of the amount of equity you sell to ensure your business model remains sustainable.
Following these tips can enhance your chances of running a successful crowdfunding campaign.
What type of crowdfunding does your business need?
Since crowdfunding has gained popularity in recent years, business owners now have more financing options than before. They must, however, exercise caution and choose the crowdfunding option that is best for their company. You can always speak to an accountant to help you select the optimal crowdfunding option since they can guide you with their acquired expertise.
This section will help you decide the most suitable crowdfunding option for your business by shedding light on the advantages and disadvantages associated with each option.
Let’s find out more about the best crowdfunding platforms in the UK.
The Top 11 Crowdfunding Sites
The UK boasts many excellent crowdfunding sites. Here are our picks for launching your big idea with the best help.
Crowdfunding is blowing up in the UK. The third-largest crowdfunding market in the world is behind China and the US.
These days, you needn’t satisfy steep bank requirements or know angel investors to launch a startup. Crowdfunding sites make it easy to source seed capital from the public online. Whether rewards-based sites like Indiegogo or cause-based sites like JustGiving, there’s a platform to match your aims and audience.
As a partner of crowdfunding websites, we can guide you along the path to success. The 11 best crowdfunding sites in the UK are listed below.
The 11 Best Crowdfunding Platforms For UK Companies In 2023
- Funding Circle
In the list of best funding platforms, Indiegogo is highly popular and attracts millions of monthly visitors. It offers two funding options: Flexible Funding, where you can keep all the money raised even if you don’t reach the target, and Fixed Funding, which requires getting the target for funds to be released. Indiegogo charges a 5% fee on funds raised (except for cause-based campaigns) and payment processing fees ranging from 2.9% to 4.4%. With its broad reach and funding options, Indiegogo is a versatile choice for UK companies seeking crowdfunding support in 2023.
Kickstarter has gained immense popularity as a leading crowdfunding platform for creative projects. With many completed campaigns and a large backer community, Kickstarter offers a thriving environment for creative individuals and aspiring e-commerce ventures. Kickstarter follows the “all-or-nothing” model, meaning funds are received only if the campaign reaches its goal. If the funding succeeds, Kickstarter charges a 5% fee on the funds raised. Payment processing fees range from 3% to 5%. In 2023, UK companies in the creative and technology sectors can leverage Kickstarter’s supportive community to bring their innovative ideas to life.
FundRazr stands out with its impressive success rate and integrated social media tools. This crowdfunding platform allows users to choose between keep-it-all or all-or-nothing funding models, depending on their preferences and campaign goals. FundRazr has been operating since 2009 and has established itself as a reliable platform for individuals and organisations to raise funds for various projects. With its focus on success and social media integration, FundRazr offers UK companies a powerful tool to boost their crowdfunding campaigns in 2023.
Crowdcube has significantly impacted the UK crowdfunding landscape as the world’s first equity-based crowdfunding site. This platform allows businesses of all types to seek investment by selling shares to potential investors. Crowdcube offers free listing and requires companies to upload a pitch video and project description to attract investors. They charge a 7% fee on funds raised. With its focus on equity-based funding and a wide range of potential investors, Crowdcube will be a valuable platform for UK companies in 2023.
GoFundMe is a widely recognised one of the best equity crowdfunding sites for charity-based campaigns. It enables individuals, families, and non-profit organisations to create fundraising campaigns and receive donations. GoFundMe stands out for its low fees, charging a 5% fee on total funds raised, with no setup cost. Moreover, no charges are incurred if a campaign fails to reach its target. With its user-friendly interface, transparent fee structure, and quick payout process (within 48 hours), GoFundMe is an excellent choice for UK companies looking to raise funds for charitable causes in 2023.
BankToTheFuture.com is a crowdfunding platform offering reward-based and equity-based funding options. It caters to businesses and entrepreneurs seeking funding for their innovative ideas. BankToTheFuture.com provides an interesting feature that allows campaign creators to see who has viewed their projects. Additionally, if the campaign fails to reach its target, the platform offers flexible funding options, allowing the raised funds to be utilised. BankToTheFuture.com charges a 5% commission on funds raised. With its unique features and funding options, BankToTheFuture.com is a valuable platform for UK companies seeking crowdfunding support in 2023.
Fundable offers a versatile crowdfunding platform for companies and start-ups, providing reward- and equity-based crowdfunding options. The platform suggests reward-based campaigns for funding goals ranging from £800 to £40,000 and equity-based campaigns for goals exceeding £40,000. Fundable charges a £143 monthly fee and a processing fee of £0.24 plus 3.5% of the pledge amount. With its focus on business ventures and the ability to choose between reward and equity models, Fundable provides UK companies with a comprehensive platform to attract funding in 2023.
Founded in 2013, SyndicateRoom focuses on equity-based crowdfunding and aims to support early-stage start-ups by raising capital from angel investors and venture capitalists. As a platform, SyndicateRoom acts as a venture capitalist, listing qualifying businesses and attracting other investors. With a portfolio of over 220 companies and more than 1,000 investors, SyndicateRoom provides UK companies with a valuable network and funding opportunities in 2023.
Seedrs is a leading equity-based crowdfunding for startups in the UK that enables investors to actively participate in the success of the business they are interested in. It has gained recognition for its ability to raise substantial investments. Seedrs implements specific funding tiers, with transaction fees of 6% for the first £150,000 raised, 4% for the next £300,000, and 2% for all donations exceeding £500,000. With its focus on equity-based funding and tiered fees, Seedrs offers UK companies a reliable platform to attract investors and secure funding in 2023.
JustGiving has a strong reputation as a cause-based crowdfunding platform. Since 2001, it has supported individuals and organisations in raising funds for education, international aid, and local community wellness initiatives. JustGiving charges no platform fees for donations, only applying a 1.9% transaction fee, a £20 payment processing fee, and a 5% Gift Aid processing fee. The platform allows campaigners to keep the money raised, even if the campaign doesn’t reach its target. With its focus on charitable causes and transparent fee structure, JustGiving will remain a trusted crowdfunding platform for UK companies in 2023.
Funding Circle is another crowdfunding platform that deserves recognition for facilitating peer-to-peer lending for businesses. It connects businesses in need of loans with individual and institutional investors who are willing to provide funding. Funding Circle operates in the UK and has significantly supported small and medium-sized enterprises (SMEs) with access to capital. The platform’s lending model and extensive investor network make it a valuable option for UK companies looking for business loans and investment opportunities in 2023.
Crowdfunding Stats You Need to Know
If you are considering crowdfunding as a good opportunity for your business or idea, here are some interesting statistics you should consider.
- Fundrazr boasts the highest success rate among UK platforms at 42%
- Kickstarter follows closely behind with a success rate of 37.1%
- Crowdfunder holds a success rate of 16.7%
- Indiegogo maintains a success rate of 12.8%
- In 2022, campaigns on crowdfunding platforms achieved an average of £14776.84 in funds raised
- London-based businesses secure 58% of deals within the UK
- During the second funding round, startups have the potential to raise up to £12 million
- Female entrepreneurs capture 24% of equity crowdfunding deals
- 40% of crowdfunding investments are dedicated to business-focused ventures
- A campaign’s initial and final three days typically contribute 42% of the funds raised.
If you are looking for funds to launch and develop your business, crowdfunding is a great way to allow the public to participate in your project actively. People love feeling part of something important and original and becoming part of a community.
If you manage your marketing campaigns with the right strategy and create excitement around your idea, you will have a large customer base even before your business is launched. What better way to start?
Tax Implications | Do You Pay Tax on Crowdfunding in the UK?
The crowdfunding tax in the UK varies depending on the funds’ purpose and the campaign’s nature. Suppose the funds are received for personal or non-profit reasons, such as supporting a charitable project. In that case, they are generally considered gifts or donations and are not subject to income tax. However, individuals may have tax obligations if the funds are raised for business purposes, like launching a product or starting a company.
Consulting with a tax professional or HM Revenue & Customs (HMRC) is important for individuals engaging in business-related crowdfunding campaigns to ensure compliance with tax laws. Income tax may apply if individuals provide goods, services, or rewards in return for the funds received. Capital gains tax may also be relevant if crowdfunding involves selling investments or assets like shares or property. Additionally, VAT obligations may arise if individuals offer goods or services as rewards.
It is crucial to consider factors such as the purpose of funds, the type of crowdfunding activity, and personal tax circumstances. Seeking professional tax advice is recommended to understand specific tax obligations and ensure compliance with HMRC regulations.
How to launch a successful crowdfunding campaign?
Our accountants have listed down 9 tips for conducting a successful crowdfunding campaign.
Share Your Story
- Introduce yourself, your business plan, and the origin of your business idea.
- Provide details about the budget required and your unwavering passion for pursuing it.
Offer Incentives and Rewards to Interested Donors
- Attract financial backing by offering generous incentives or explaining the return on investment for contributors.
Set a Funding Target
- Determine the desired fundraising amount and establish a clear funding goal to maintain focus.
Utilise Every Marketing Channel
- Leverage social media, reach out to bloggers and influencers, and consider hosting events to expand your network and market your campaign.
Keep Your Donors/Investors Updated
- Regularly update project backers to keep them informed about the progress of your business.
Earn the Trust of Your Investors
- Stay committed to your fundraising objectives and maintain transparent communication to foster trust among your investors.
Present Your Product Uniquely
- Convince people that your product/service is unparalleled and highlight its distinctive features.
Make Your Life Easy
- Simplify daily operations by enlisting the help of a manufacturer or relevant service providers.
Take Customer Feedback Seriously
- Value customer feedback to enhance your product/service and cater to their needs.
Learn how to manage your finances efficiently after a successful fund raise. Speak to us now!
Who are we?
Clear House Accountants is a reputable accounting firm based in London, offering a comprehensive range of professional accounting services to businesses of all sizes. Our expertise lies in providing expert guidance and support in business advisory, tax planning, payroll management, and other essential accounting functions. We specialise in catering to the unique needs of startups and small businesses, assisting them in optimising their financial operations and navigating every stage of business growth successfully. With our dedicated team of experienced professionals, we are committed to delivering excellence and ensuring our clients’ financial success.
Frequently Asked Questions
What Is Loan-Based Crowdfunding?
Loan-based crowdfunding involves investors receiving their money back, usually with interest, after a specified period.
What Happens If A Crowdfunding Platform Fails?
The outcome when a crowdfunding platform fails depends on the specific platform. Some may allow project creators to receive the remaining funds, while others may keep the funds protected until the goal is reached.
What Are The Disadvantages Of Crowdfunding?
Crowdfunding has the disadvantage of exposing unpatented ideas, increasing the risk of others stealing and patenting them as their own.
How We Chose These Crowdfunding Platforms
These crowdfunding platforms were selected based on usability, pricing, available tools, success rates, integrations with marketing and third-party platforms, and payment options. Over 11 platforms were considered before narrowing it down to these top six.
In conclusion, crowdfunding has experienced steady growth in popularity as a viable alternative to traditional funding methods. With banks no longer monopolising access to capital, entrepreneurs and creators increasingly turn to crowdfunding platforms to bring their business ideas to life. The allure of receiving significant financial backing at a comparatively low cost makes crowdfunding an attractive option for future business ventures.
Anam has a degree in accounting from the Prestigious St John’s University, and works as a senior director in Clear House.
Before working in Clear House, Anam worked in various commercial roles, the last one being the VP Operations for a prestigious business organisation,working on improving the organisation’s operational efficiency, growth and high level client management.
Anam manages clients ranging from software companies to large property developers and managers. Notably, she recently worked with a large property development company building large scale developments in London and the surrounding area.