There are several ways a business can find funding for growth; asset finance, invoice finance, venture capitalist funding, angel funding to name a few. With Crowdfunding, there are two main types; donation based where the projects are funded without loss of equity for the business. Rewards could be based on mementos from the project or exclusive access to something. Equity based crowdfunding means that shares are issued in return for cash, so there is a financial stake, and risk associated with this form.
Listening to the Panel at the RSA , most views on crowdfunding were positive as a way of raising finance for social and commercial businesses. There are an increasing number of crowdfunding sites; Kickstarter and Indigo being two of the best known. The concern was to ensure that sites have credibility and credentials. The UK government are looking at regulation to help ensure validity of the services. From the company that is looking for growth finance, they must accept that normal business practices prevail, such as business plan and cash flow. They can be ambitious but they have to deliver. Agreed milestones have to be achieved.
Trust is so important in this market. The crowdfunding ‘tribe’ is,to a certain extent, self-regulatory and the trust must be both ways. When asked about trust and the future of this kind of growth funding, the panel agreed that the one thing that would knock crowdfunding off the rails was the abuse of that trust in the form of scams or fraud. With this in mind the interpretation of the debate was cautious optimism.