Crowd funding, or peer-to-peer lending, is fast becoming well known; but what exactly is it? It is a method of seeking investment from many people, donating small amounts, to raise a large amount of money for a particular project or company purpose.
Historically, raising finance for companies or projects has been seeking large amounts of money from a few people or bankers even. Crowd funding uses the internet to raise the profile of such projects or companies that need to raise funding, and the reach of people or investors can be vast. Social media has a huge impact on raising awareness and this type of investment compliments social media's far reaching network and can be extremely successful. Websites such as Crowdfunding, Crowdcube and Kickstarter* are all examples of companies who have popularised this modern day approach to investing. Gone are the days when investments meant the stock exchange. Instead, it has brought a new dynamic of investing to even the average Joe, who typically perhaps would not have had the opportunity to invest in such a way.
There are a number of different types of crowdfunding, which can include:
- Giving Away Equity in a Business, i.e receiving shares of which will hopefully raise in value over time
- Debt Funding - where the investor receives the money back plus interest
- Reward Funding - where the investment is more about the social impact or the reward – an example may be if you contribute money towards a local community project or a friend’s album packaging for their up-and-coming band.
What is clear however is that the options are vast and endless.
Whether you are seeking investment or seeking to invest in a particular company, its key to understand all the risks and implications before you part with your money or apply to crowdfunding sites. Research, solid business plans and advice from the outset are going to be very important from the outset. If you have any questions about crowdfundings, contact Nicola Lucas today in our Business Law Team.
* Please note that Nockolds has no affiliation with these crowdfunding providers and provides them as examples for illustrative purposes only.