Crowd funding

2. Crowd Funding
 Crowd funding is a way for people, businesses and
charities to raise money.
 It works through individuals or organizations who
invest in (or donate to) crowd funding projects in
return for a potential profit or reward.

3. Crowd Funding
 If a company or person wants to raise money through
crowdfunding, they can pitch i.e. post for it by posting
details of their project, business or idea on a
crowdfunding website.
 This means they can avoid going to a bank.
 The ‘crowd’ in crowd funding refers to the people, or
organizations that provide the money.

5. Types of crowdfunding
 There are several types of crowdfunding:
 1) Investment-based crowdfunding.
 2) Loan-based crowdfunding.
 3) Donation-based crowdfunding.
 4) Reward-based crowdfunding.

6. Investment Based Crowd
Funding
 You invest in a business and receive a stake in return
(normally shares) is the Investment-Based Crowding.
 Investment crowdfunding is a way to source money for
a company by asking a large number of backers to
each invest a relatively small amount in it. In return,
backers receive equity shares of the company
 Thus It is also known as Equity Based Crowd
Funding.

7. Loan-based crowdfunding
 You lend money to individuals or companies in return
for a set interest rate.
 It’s also called peer-to-peer or peer-to-business
lending (P2P or P2B).
 With this type of crowdfunding, individuals lend money
to businesses or other individuals with the expectation
that it will be repaid together with interest added.

8. Donation Based Crowd
Funding
 This is where individuals donate money to a cause,
charity or person without expecting anything in return
other than the satisfaction of having contributed
towards something they feel is worthwhile.
 It is typically used by social causes, not-for-profit
organisations and arts projects for example, to raise
money.

9. Reward Based Crowd
Funding
 Rewards-based crowdfunding is a type of small-
business financing in which entrepreneurs solicit
financial donations from individuals in return for a
product or service.

10. HOW DOES IT WORK?
 Business owners describe their project or business idea and
fund raising goal on a crowdfunding platform.
 In return for donations, businesses provide rewards.
 For example, a jewelry designer might reward everyone who
contributes $100 with an original handmade bracelet, or an
inventor of solar-powered lawn mowers might give a mower
to contributors at the $1,000 level.
 Rewards don’t have to be substantial; some businesses
offer a simple handwritten thank-you note.

11. Important Note
 Neither donation nor reward-based crowdfunding are
regulated by the Financial Conduct Authority(FCA),
but loan and investment-based crowdfunding are
regulated by FCA.

12. How does crowdfunding
work?
 If you visit a crowdfunding website, you should be able
to see an overview of the projects being posted.
 You might need to register with the website in order to
see the post, to get more details, or to invest in a
project.
 If you find a project you’re interested in, you’ll need to
look for more details.

13. The business, individual or social
enterprise that’s looking to raise
money should inform you:
 How much it wants to raise ?
 How much it has raised so far ?
 The share in the business offered (if relevant)
 What the money will be used for ?
 How long the post is open for ?
 How many people have already invested ?
 What you will receive in return for investing (such as
shares in the company) ?

14. What are the risks?
 Crowdfunding is a new concept and investing in young
businesses can be very risky. The main risks are:
 The business you invest in might go bust. Many
new businesses fail in the first few years, so you could
lose all your money.
 The return is not guaranteed. The shares may not
rise in value and you may not receive any dividend
payment (a share of the profits).

15.  It may be hard to sell the shares. The shares are
normally unlisted, which means you may not be able to
sell them easily in the way you could sell shares in a
big company that’s listed on the stock market.
 The crowdfunding platform itself may go bust. This
could mean you lose money if you’d paid the
crowdfunding website but it goes bust before your
money was invested with the business.

16. Reducing the risks of
crowdfunding investments
 Only invest money you can afford to lose. You should
invest no more than 10% of any money you have
available for investing in any one year.
 Before you invest any money using an investment-
based crowdfunding platform, check the Financial
Services Register to make sure it is authorised.
Donation and reward-based crowdfunding platforms
are not regulated by the FCA.