What is crowdfunding?

Crowdfunding

Crowdfunding literally means: raising money from the crowd. You must tell as many people as possible about your plans and ask if they are willing to invest in it. You do this through an online crowdfunding platform, where you create a campaign. You advertise your plans via the campaign.

For whom?

Crowdfunding is a financing type that is particularly interesting for startups, small businesses, artists, and non-profit organisations. 

Why choose crowdfunding?

• You want to carry out the plans for your (new) business and need money to do so.
• You would like feedback on your service or product. You can use a crowdfunding campaign as market research or as a marketing campaign.
• Crowdfunding creates a special bond between your business and the people who invest in it: they become fans, sometimes ambassadors, and are loyal customers.
• You can usually start a campaign quite easily. 

What do you need to watch out for?

Raising funds takes time, and crowdfunding is no exception. Expect a lead time of 6 to 8 weeks. Preparing your campaign is a complex and time-consuming process. You need to explain what your plan is, how you are going to carry it out, and how much money you need. And explain what investors can expect in return if they decide to support your business idea. You also need time to contact members of your network (digital or otherwise). Be honest about the financial situation of your business. And make it clear what you will do with the money raised. After the campaign, you should also keep investors informed.

Every platform has its own set of requirements and uses its own approach. Find a platform that suits your wishes and sector. It is also possible that your plan may not be suitable for crowdfunding.

Keep in mind that a platform will assess your plan and see if it is suitable for crowdfunding. Your plan may be rejected by a platform. If your plan accepted and published on a platform, you will be charged a fee.

How much money can I raise?

You decide how much money you would like to raise through crowdfunding. Platforms often specify a minimum amount of €25,000 on account of the time and costs involved in a campaign.

How do I get started?

It is easy to get started with crowdfunding. Complete the following  steps:

• Make a plan
• Think how you are going to reward your investors
• Choose a crowdfunding platform
• Tell as many people as possible about your plan
• Start your crowdfunding campaign
• Stay in touch with your investors

What are the various types of crowdfunding?

When people invest in your business, they will usually expect something back. You can personally choose how to repay the financial contribution from the crowd. There are 3 options:

• Equity capital
  The investors acquire shares in your business and receive dividends (compensation depending on the profit earned). How much that is depends on the profit you make from your business and what you have agreed with the investors on that. You can also make agreements with the investors about buying back the shares later.
• Loan capital
  The money people put into your business is a loan to you. Such a loan is called a crowdfunding loan. You pay interest on the amount you borrow. How long the loan runs depends on what you are using the money for. Are you a startup? Then that is a risk for the investors. In that case, you usually have to offer a higher interest rate. The crowdfunding platform can advise you on this. A crowdfunding loan is the most popular form of financing through crowdfunding.
• Rewards or consideration
  For the investment that people make in your business, you provide something in return. For example, you give them a product. You can come up with a fun action. Say you want to start a coffee bar. Then your investors can come and have a free cup of coffee on Fridays for a year, for instance. Explain clearly in your campaign what your investors will get in return. Note: you must also charge VAT to the investors on the value of the reward.

Help with business financing

KVK’s Financing Guide helps you find your way in financing your business. Do you still have questions? Call the helpline on 088 585 11 11 or ask an expert.