Crowdfunding is a public method of getting funds from numerous people to achieve the pursuit of a specific purpose. This can be done mostly on the internet, specifically through sites. After all the funds are put together, the money is used to fund the goal or project.
Crowdfunding is utilized by all kinds of individuals like business owners, politicians, or even charities.
It’s extremely well-known. According to Moneypenny in 2018, there were 6,455,080 campaigns and the number is projected to almost double within the next four years.
A successful story is Monzo which in 2016 held its campaign on the renowned website Crowdcube. They made PS1 million in only the span of 96 seconds.
There are many ways to crowdfunding. In general, it can be done by two methods:
Crowdfunding Methods
1. debt
It includes different kinds of lending that are crowd-sourced like a peer-to-peer loan and invoice financing. It functions exactly the same way as the typical loan but the loan is made taken from multiple individuals.
2. Equity
In exchange for cash, investors from the public sector receive a part of the capital in the business.
The exchange of equity in exchange for cash is way beyond regular crowdfunding.
It’s more frequent to find startups that use equity crowdfunding.
Crowdfunding v Angel Syndicate
An angel syndicate is an investor group who have joined forces to invest in a young company.
It’s distinct from crowdfunding in that it is a syndicate where the investors can be selected by hand exclusive invited or need to invest with more money. Crowdfund investors could be any with a minimum amount of money needed (usually only PS100).
Angel syndicates typically have one principal investor who selects the most profitable deals and then invites the entire syndicate to the deal.
Consider angel syndicates as an elaborate scheme in which only select startups sign on and the manager of the entire group invests in themselves.
Since angel syndicates are more secretive than sites, angel syndicates have access to more lucrative deals. The most successful startups will usually prefer to keep a low profile about what they’re up to when they can.
Related: How to Make Money In Community Management? (8 Strategies)
We do what we can at IFG Angel Syndicate is, therefore, a special kind of crowdfunding for equity which is where we exclusively invest in quality start-ups that comply with sharia.
It’s best to utilize an angel syndicate when you’re unsure of what you’re doing. Additionally, you’ll have access to an advanced network, better companies, and better deals.
Crowdfunding v Venture Capitalist
The term “venture capitalist” (VC) is an investment management fund that has raised thousands of pounds through pension funds as well as sovereign wealth funds, banks, and other institutional investors. VC invests in companies they believe have significant growth potential. As a result of their investments, they are given equity.
The main difference between investing with crowdfunding and a VC one is that to invest in the VC fund you’ll generally require a minimum amount of PS100,000 and more often more than 1 million.
They are extremely selective about their investments, however, they have a smaller time horizon than angel investors because their funds must close and return the money to their investors in 7-10 years.
VC investors are most likely to gain access to the most lucrative deals. Then you will find angel investors. Then you can use these platforms.
Where can you begin with crowdfunding?
Now that we understand what is, where can we start?
This is usually done on the internet. Some of the most popular sites are:
- Seedrs
- Crowdcube
- Kickstarter
- Funding Circle
- RateSetter
If you prefer to join an angel group IFG offers the angel syndicate that you could explore.
What can you do to achieve it effectively?
We’ve discussed how you can make money through this. Now let’s talk about:
What is the cost to make use of these platforms and
Making investments on these platforms
Cost
When you are you are a new start-up the price is an important factor to take into consideration. These sites will charge you for hosting.