What is crowdfunding?
If a company or person wants to raise money through crowdfunding, they can pitch for it by posting details of their project, business or idea on a crowdfunding website. This means they can avoid going to a bank. The ‘crowd’ in crowdfunding refers to the people, or organisations that provide the money.
There are several types of crowdfunding:?
- Investment-based crowdfunding. You invest in a business and receive a stake in return (normally shares).
- Loan-based crowdfunding. You lend money to individuals or companies in return for a set interest rate. It’s also called peer-to-peer or peer-to-business lending (P2P or P2B). You can read more about loan-based crowdfunding in our guide to Peer to peer lending.
- Donation-based crowdfunding. You donate to a person or a charity (you may be promised something in return).
- Reward-based crowdfunding. You give money in return for a reward linked to the project or cause you’re supporting.
Invest In Me focuses mainly on donation based crowdfunding
How does crowdfunding work?
If you visit a crowdfunding website, you should be able to see an overview of the projects being pitched. You might need to register with the website in order to see the pitches, to get more details, or to invest in a project.?
If you find a project you’re interested in, you’ll need to look for more details. The business, individual or social enterprise that’s looking to raise money should tell you:
- How much it wants to raise
- How much it has raised so far
- The share in the business offered (if relevant)
- What the money will be used for
- How long the pitch is open for
- How many people have already invested
- What you will receive in return for investing (such as shares in the company)