law
An alternative way to financing Crowdfunding is a way of raising money from a large group of investors
While charities and political parties have been using crowdfunding for several years to raise funds through donations from the public, technological developments are now allowing virtually anyone with access to the internet to pitch their business ideas to the public and raise funding.
What is crowdfunding?
The Financial Conduct Authority (FCA) classifies four different categories of crowdfunding:
• Donations – people are asked to give money to enterprises or organisations whose activities they want to support. The donors do not receive anything in return.
• Rewards – people are asked to give money in return for a reward, service or product. Kickstarter is the largest rewards-based crowdfunding platform, where users can
pledge to donate a specified sum to a project – usually in return for the first product manufactured.
• Loan-based (peer-to-peer lending) – through this lending platform, companies seek investors who will receive fixed sums of repayments with interest over a period of time.
• Equity-based – companies offer investors the opportunity to own shares in return for investment sums.
Depending on the type of crowdfunding, the operating platform will be subject to different sets of regulations. For example, only loan- and equity- based crowdfunding platforms are subject to FCA regulations.
How do I raise money through crowdfunding?
If you have an idea for a business project which requires external
investment, crowdfunding offers a competitive alternative to traditional funding methods. But here are three key factors to consider before deciding that crowdfunding is the right method for your business:
1 What type of crowdfunding?
While donation-based funds may seem the easiest way as nothing is offered in return, remember that this may not incentivise investors so the likelihood of attracting large sums of investment is low.
Offering shares in your company may be a strong incentive if you expect to achieve high growth but this also means that you will own less of your company.
Obtaining loans from investors will mean that you will have to make agreed repayments. So, if your business is not yet generating revenues, this route is unlikely to be viable.
2 Which platform?
Have decided which type, you will need to evaluate which of the many platforms will offer you the best access to investors. Each has its own unique features and pricing system so you should select one which has the most relevant characteristics for your business.
3 Preparation - you need to ensure that your business is financially and structurally stable and that your constitutional documents address the
necessary points. For example, do they allow the business to issue additional or different classes of shares?
To discuss your next round of funding, contact Bryan Park.
Bryan Park
bryan.park@
penningtons.co.uk 01483 411474
penningtons.co.uk
Offices in Reading, London and now Henley-on-Thames.
As Reading continues to grow & evolve, so do we.
Reading | Henley-on-Thames | London
BLANDY & BLANDY sol ic i tors
www.blandy.co.uk THE BUSINESS MAGAZINE – THAMES VALLEY – SEPTEMBER 2016
businessmag.co.uk 47
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