In 2009, a new way of finding financing for their projects, crowdfunding, gained popularity among entrepreneurs. And then, more than ten years ago, and today its essence remains the same and is associated with the search for a large number of people who are ready to support a startup or any other initiative with a sum of money, often very small. To give a more precise definition, crowdfunding is a method of attracting capital through the efforts of a large number of people - friends or strangers, families, clients and individual investors. This approach draws on the collective efforts of people - primarily online through social networks and crowdfunding platforms, and uses their networks to reach a larger audience.
Key difference
Traditionally, if you want to attract capital to start a business or launch a new product, you need to develop a business plan, conduct market research and analysis, and then offer your idea to capital owners - individuals or organizations, to interest them. These sources of financing can be listed on the fingers of one hand - banks, angel investors and firms or venture capital funds.
Typically, an entrepreneur takes months, if not years, to analyze the environment and search for investors, he spends a lot of effort and money to qualitatively present his idea and development plan to them. Crowdfunding radically changes this scheme and gives an unprecedented opportunity for start-up businesses to surprise and interest a large number of people at the same time with their idea. Unlike the traditional way, crowdfunding platforms provide entrepreneurs with a single place for creating, demonstrating and promoting business ideas.
The undeniable benefits of crowdfunding
From attracting a wider pool of investors to using more flexible options for raising funds, there are a number of advantages of crowdfunding compared to traditional methods. Here are just a few of them:
- Coverage. A unique opportunity to gain access to thousands of potential investors who can see, interact and share fundraising campaigns.
- Presentation. Better evaluation of the business idea - its proposals, features, mission, target audience, cost-effectiveness etc.
- Marketing. Wide promotion through social networks, e-mail newsletters and other online marketing methods, and direct traffic to the site and other resources of the company.
- Grinding concept. Presenting business concepts to a wide audience provides an excellent opportunity to test and improve the offer. When potential investors begin to show interest and make requests, you can quickly find out what is missing, what indicators need to be corrected and strengthened in order to raise funds.
- Optimized efficiency. By creating a single comprehensive profile, to which the flow of potential investors rushes, the need to attract each of them separately disappears.
Equity Crowdfunding
Crowdfunding can be divided into several types, the most common are donation, remuneration and equity crowdfunding or as it is often called - crowdinvesting. We will pay more attention to the last type in this material.start a business
In contrast to the methods of donations and remuneration, crowdinvesting allows investors to become partial owners of the company through the sale of shares of capital.
Crowdfunding and crowdinvesting are often used interchangeably, and, although both concepts define the same scheme of project financing (the so-called ‘public financing’), they differ significantly in some aspects. Let's see how they differ:
Crowdinvesting is equity based crowdfunding. In this case, the investor invests in a startup and claims for a share of the project’s profit. An investor becomes a shareholder of a startup, receives part of the profit and income from a possible sale of a startup in the future to a strategic investor. Such investments are rightly considered risky, since there is always the possibility of either making a profit or losing everything.
There are different motivations for participating in crowdinvesting. Some people just want to support a good idea, in their opinion, and its implementation, other microinvestments are financially motivated, in particular, to benefit from the sale of the company in the future.
There is a stereotype that those who invest in startups belong exclusively to the white-collar community and have a fairly high income. But in fact, anyone can participate in the financing of a startup. Crowdinvesting becomes available to a wider circle of people who invest in a company in the future of which they believe. It is an ideal way to bring companies and people together, and allows people to directly influence the nature of decisions made by its founders.
You can order individual legal advice on the organization of a crowdfunding platform from IQ Decision UK specialists. In accordance with your request, we are ready to provide comprehensive legal support for organizing a business in optimal jurisdiction, for example:
- company registration for crowdfunding in England
- company registration for crowdfunding in Australia
- company registration for crowdfunding in Singapore
- company registration for crowdfunding in Indonesia
- registration of a company under crowdfunding in the USA
- company registration for crowdfunding in Turkey
and other states where you plan to conduct business.
For more details, please contact us by return letter or by the contacts listed below.
