Is crowdfunding or peer to peer lending right for my business, what is involved and how much will it cost?
Crowdfunding and peer-to-peer (P2P) lending have become increasingly popular through digital delivery channels. Crowdfunding mostly relates to equity investment or specific projects, while P2P relates to lending. As these two areas have matured, other crowdfunding sectors have emerged, including property and specialist finance.
Crowdfunding can be an effective fundraising route where your product or service is consumer-facing and benefits from raising awareness of your brand. Your investment opportunity will be showcased online through videos, pitch decks and supporting electronic information rooms that store your business plan and financial forecasts. How much time you need to commit depends on the crowdfund platform you choose (and there are now 20+ competing providers) and the need for investor road shows, which enable prospective investors to meet you and your management team in person and hear your pitch first hand. Like much in business, effort in preparation of a comprehensive pitch delivers better outcomes.
Fundraising costs can be relatively expensive at about 5% of funds raised, but these fees will normally only be paid (or the majority of them) if the fundraise is successful. Crowdfunding does have its disadvantages, not least the information you need to publish can contain private business information that you wouldn’t want to fall into the hands of your competitors, particularly on your product/service development roadmap or intellectual property.
Having a large number of smaller investors can also be an administrative burden if there’s future corporate activity expected, although much of this can often be administered by the crowdfunding platform.
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Crowdfunding pros and cons
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