Smaller businesses and start ups are often the worst affected and struggle to obtain bank loans in the conventional way. You may recall in our recent blog "Tech City Futures" we highlighted the finding from The Tech City Futures report that 33% of business leaders within TechCity believed that their businesses were hindered by the lack of capital. Sourcing funding was identified as one of the biggest challenges for businesses.
One alternative to bank lending which is gathering steam particularly in the tech industry is crowdfunding.
Crowdfunding is a way of raising money by asking a large number of people via the internet for a small amount of money each. A number of websites operate whereby those seeking funds can set up a profile on their project to raise money. Investors can then select projects they wish to support and invest their money. There are three different types of crowdfunding: donation, debt and equity.
Debt crowdfunding is also known as peer to peer lending- investors will receive their money back with interest whereas with equity crowdfunding money is exchanged for shares or a stake in the business or venture.
You just have to check out the various websites offering crowdfunding services to see that a number of technology based projects in the UK have been successfully funded by crowdfunding.
This week developer of the Ubuntu operating system London based Canonical has turned to crowdfunding site Indiegogo in an attempt to launch a handset. Canonical is hoping to raise $32m (£20.8m) and its campaign will run until 21 August. To succeed it needs to raise several times more cash than any other crowdfunded project has done before. Watch this space!
Have you used crowdfunding to fund a project or invested in a project? If you have any comments on this blog please contact John North, Head of Corporate and Commercial on 020 7583 2222 or [email protected] or Sonia Mohammed [email protected]