Apart from the potential returns,
some of the business proposals listed
on crowdfunding sites qualify for
special tax reliefs under the
Enterprise Investment Scheme or Seed
Enterprise Investment Scheme rules.
This gives investors generous
tax breaks, such as being able to claim
back income tax on the money they
invest.
Whether investing or aiming for
funding, I would have a number of
questions, including:
How many companies have
achieved full funding?
How much time and money did they
spend to achieve it?
What is the key factor in a
successful launch and what should be
avoided at all costs?CROWDCUBE.COM
This is one of the longest established
sites providing a variety of businesses,
from motor companies to pizza delivery
firms, with the opportunity to pitch for
funding.
Many of these businesses are already
successfully operating and are seeking
investment to expand their footprint in
a particular market. Investors can view
a business plan and video, which details
why the company is seeking funding
and the potential rewards on offer.
All businesses are vetted by
Crowdcube and must present business
plans with at least three years of
financial projections. When you speak
to these people, they come across as
rock solid.SEEDRS.COM
Another well known site, Seedrs.com
allows investors to back a start-up firm
by providing seed capital, for as little as
£10, in exchange for equity.
The company carries out full due
diligence with all of the enterprises that
list. But it also argues it’s best ‘left to
the crowd’ to decide if the business is
worthy enough to invest in.
There are plenty of other
crowdfunding websites out there, the
majority of which operate in niche
areas. This could be ideal if you fit their
criteria. As an example, there are sites
that focus on female entrepreneurs
(although I wouldn’t call 50 per cent of
the population ‘niche’).It will not necessarily be an easier process to go through, compared to the more
traditional ways of raising finance - not all projects that apply to crowdfunding platforms
get onto them.
When you are on your chosen platform, you need to do a lot of work in building interest
before the project launches - significant resources (money and/or time) may be required.
If you don’t reach your funding target, any finance that has been pledged will usually be
returned to your investors and you’ll receive nothing.
Failed projects risk damage to the reputation of your business and people who have
pledged money to you.
If you haven’t protected your business idea with a patent or copyright (which may not be
possible), someone may see it on a crowdfunding site and steal your concept.
Getting the rewards or returns wrong can mean giving away too much of the business to
investors.SIX DISADVANTAGES OF CROWDFUNDING