Crowdfunding, frequently asked questions

Lisa Smith, BA (Hons), CeFA
By

Crowdfunding is a hot topic for investors on both sides of the Atlantic. With US big boys Kickstarter.com heading to the UK later in 2012, interest in cowdfunding is set to reach fever pitch.

For those who aren’t in the know, here’s a quick guide to some of the most frequently asked questions about crowdfunding:

How does crowdfunding work?

Someone looking for money to help promote a business or product sets up a pitch that explains how much money they want and how they plan to spend the cash.

Investors can then offer some or all of the cash. If all the money is not raised, the project generally does not go ahead.

How much money do I invest?

As little or as much as you want depending on how you assess the risk of the project failing. Crowdfunders are ready to lose some to win some, and generally spread the risk by investing in several projects.

What are the returns?

Returns depend on risk. The higher the risk, the better the return. Some projects are willing to say thanks for a donation with some freebie product. Others offer more formal shares in future profits and any capital growth of the business.

How is the cash invested by crowdfunding?

Investors tend to pledge their money by transferring cash in to a special account held by the crowdfunding web site or group. Once the funding target is reached, the money is transferred to the entrepreneur.

Why do investors crowdfund?

This depends on an investor. Some give small amounts as donations, to charities projects or just for fun. Others deal with more serious sums and expect to see a real return on their cash.

What sort of projects get crowdfunded?

Creative projects are among the most popular – especially music, video and movies.

Do crowdfunded projects get tax breaks?

Not directly as crowdfunding, but if they qualify under special rules for seed enterprise investment schemes: www.seis.co.uk or enterprise investment schemes, the tax benefits can be very advantageous

Leave a Comment