Why crowdfunding appeals to friends and family

In most cases, the only people who have large sums of money to invest in new-start business are established entrepreneurs or business angel or early stage VC investors.

But if you break down the money you require into smaller chunks, you open up the opportunity of more people getting involved.

For example, if you’re looking for £10,000 you may fail to convince anyone to hand over a five-figure sum. That’s not unusual, it’s a lot of money.

But what about £1,000? You may have friends or family who would be willing to invest that smaller sum in your idea. Find ten and you’ve just crowdfunded your business.

Friends and family may be happy to lend you the money, maybe they’ll ask for interest. Some businesses promise a cut of future profit as an incentive. Other businesses might give backers exclusive access to the product.

For example, if your product’s going to be worth at least £1,000 you can offer your backers the first ten off the production line. If it’s worth more, they might even be getting a bit of a discount. But that’s ok, because they enabled you to get your business off the ground.

What makes crowdfunding easier to attain than pitching to a single business angel is that the sums involved are smaller and there’s less risk involved, meaning the number of people who can afford to help you out increases.

Crowdfunding has exploded in recent years, which has closely mirrored the rise of the internet. The internet has brought together people with similar interests who have been able to fund albums being recorded by obscure artists, and finance films directed by unknown names or on niche topics.

These days, virtually any business can find funding on the internet, so long as it’s got a solid plan. You can open your options further by taking advantage of relevant schemes. In the UK, the government has a Seed Enterprise Investment Scheme (SEIS) which gives tax breaks to people who invest in small and start-up businesses, for example.

So don’t worry if you can’t find your investor, crowdfunding might mean there’s more backers out there than you realised.

 

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