SMEs and startups reap benefits of crowdfunding

Crowdfunding has grown considerably in the years since the financial crisis, and businesses are reaping the rewards of this alternative source of finance.

The years since the financial downturn have seen a considerable rise in the number of new businesses and self-employed people, both in the UK and around the world. Yet at the same time, low confidence and reluctance on the part of many banks to lend to riskier businesses has made it much harder for some small firms to obtain finance.

It is hardly surprising that companies have shown more and more interest in alternative forms of finance.

The UK government recently announced new proposals to tackle late payment that will remove legal barriers for firms seeking invoice finance.

Venture capital has exploded, with the likes of Google and Microsoft both setting up their own investment arms to give high-potential technology firms a kickstart. A raft of high-profile projects have got off the ground with the help of crowdfunding.

But crowdfunding is not reserved for high-profile projects like the Veronica Mars movie. As a new report in the Guardian points out, businesses can also reap big rewards from sites that allow individual donors to give as much or as little as they want towards the firm’s financial goal.

It’s a model that comes with a level of risk, the article shows, since businesses that fail to meet their targets on a site like Kickstarter don’t usually get any of the money that was pledged. But with Kickstarter having brokered more than $1 billion in investment pledges in the five years it has been operating, it is clear that some companies have succeeded in gaining the finance they need.

What’s more, crowdfunding often brings with it more than just money. With multiple donors who now have a stake in the business, companies can benefit from access to a wide range of contacts, expertise and advice that can help them grow much faster.

Ryan O’Rorke, owner of food and drink delivery service Flavourly, told the Guardian that he had never even considered going to a bank for finance because he could gain so much more through the crowd.

“By going down the crowd route we’ve gained access to a pool of 12 investors who together bring financial, marketing and customer acquisition skills to the table. For a young company like ours, that’s invaluable,” he told the source.