8 min read
Starting a new business venture requires capital, but traditional funding routes like bank loans or seeking investors can be challenging, especially for small businesses, and if you don’t have a rich aunt willing to lend you the cash, then how do you get your idea off the ground?
Crowdfunding has emerged as a viable alternative that offers more than just financial backing—it provides product validation, community support, and marketing momentum all in one package.
Crowdfunding allows entrepreneurs to raise small amounts of money from many people, typically via an online platform. These contributors may be the first to receive the product, other rewards, a share of the business, or simply the satisfaction of supporting a project they believe in. For small businesses, crowdfunding represents not just a funding source but a powerful way to test ideas, build an audience, and create brand advocates before you’ve even launched.
Alternative finance options such as crowdfunding are growing increasingly popular. What started as a solution for British rock group Marillion who, in 1997, needed $60,000 to fund an American tour, is now a market worth £3.2bn, of which £1.49bn is used by businesses.
According to Peter Baeck, Principal Researcher at innovation charity, Nesta, crowdfunding represents 15.6% of total UK seed and venture-stage equity investment while equity-based crowdfunding has grown by 295% since 2014 to £332m.
SMEs and particularly microbusinesses are increasingly using crowdfunding or P2P loans. The average value of these loans is £74,000.
There are three main categories to crowdfunded finance.
There are three main categories to crowdfunded finance.
Lenders give because they believe in a project and not because they specifically want a return.
Instead of financial return, they may receive publicity, tickets to an event or a notional gift.
The investor’s reward is the interest returned on top of the money that they lend.
This is the form of crowdfunding that’s upsetting the traditional high street banks, as it is often more flexible with less interest to be paid.
Investors exchange cash for equity (shares) in a business.
This is arguably the most desirable form of crowdfunding as this can float a business without many of the traditional hurdles or costs.
Choosing the right platform for you will depend on your business model, funding needs, and whether you want to give rewards, equity, or loan repayments in exchange for funding.
Apart from the obvious – you need the money – why would you choose to crowdfund? After all, the platforms will charge you 3-8% of the total amount raised, and it’s a lot of work. What’s more, many platforms will only let you have the money raised if you hit your pre-determined target (this isn’t true for all platforms, so take this, and the fees they charge, into account when deciding on a platform).
Crowdfund because it allows you to test a minimum viable product before you’ve gone all in, it forces you to make important decisions about your business before you start, and it creates brilliant launch marketing momentum when done right.
You can use crowdfunding to launch your product and prove the product/market fit simultaneously. By offering the product you’re launching as the only reward options, you can ensure that your backers really want the product. If you go for the ‘all or nothing’ option, you will only get the funding (and be obliged to deliver your rewards) if you hit your target.
For the crowdfunding campaign to be successful, you need to be able to tell people as much information about the product as you can and get them excited about it. Most crowdfunders opt to make a video to get this across in the most engaging, entertaining and succinct way possible.
Financial clarity is non-negotiable for crowdfunding (and starting a business). You must know exactly what you need, why you need it, and how you’ll use it.
Calculate:
Many campaigns fail because creators underestimate costs, leading to delivery problems or even project abandonment. Be conservative with your estimates and transparent with your backers about how their money will be spent.
Marketing is about conveying as much as you can about the thing, all the benefits of the thing, and creating excitement and desire for the thing without actually giving them the thing. And never was this truer than in crowdfunding.
Crowdfunding thrives on community engagement. Your campaign shouldn’t just ask for money; it should invite people to join your journey and when they do, you’ll have fans for life.
Build community by:
This involvement will transform passive donors into active advocates who will promote your campaign to their own networks, amplifying your reach.
Human psychology responds to scarcity and deadlines. If something is always available, people will often put off buying it until one day in the future. Crowdfunding is great for incorporating that urgency, so if people want it, they need to let you know now!
Incorporating urgency into your campaign:
These tactics encourage immediate action rather than the “I’ll back it later” mentality that often leads to missed opportunities.
Projects that look like they’ll succeed attract more backers, creating a positive feedback loop. The trick is to create enough initial energy to start the momentum:
Preparation determines crowdfunding success, and your pre-launch period is more important than any.
You can do this online to save money, but a launch party and a closing party for your campaign will show people you’re excited and get them excited. With any luck, your closing party will actually be a celebration when your campaign succeeds—crowdfunding is intense and acknowledging the achievement matters.
The Stripes Company was conceived as a tribute to the deckchair and wanted to revive the use of stripes for those at leisure. The company applies striped textiles to a number of lifestyle accessories that are found around the house, in the garden, or at the seaside.
The company has borrowed more than £175,000 since January 2011 through three separate crowdfunded loans, to help with cash flow.
Maria Hopwood, owner of the business, says the process was invaluable. “We had completely run out of resources, we needed stock because we were selling it too quickly. We’d got into the realms of starting to pay wages, we’d started to run up costs. Our website was looking very dated. We had goods coming in, sitting at the docks – and we couldn’t clear them.”
Hopwood spoke to the banks and went down all of the usual routes, the problem was they were building a business in a recession – they had shut their doors to borrowers.
“My husband had found Funding Circle online and said that it would actually be perfect: if we wanted to pay off the loan very quickly there’s no penalty. We applied, they approved our application, they put it up on the site and within three days it was completely oversubscribed so we got our loan very quickly.”
The company has now set up an Australian website and is going to be setting up an American website. “We’ve been used in television – we supplied a lot of furniture for Downtown Abbey. Opera, theatre, ballet, films; we’ve done some Hollywood movies using our fabric. I really feel like how I can identify with our investors because they are the sort of people we want to love our company.”
Crowdfunding isn’t just about raising money—it’s about building relationships, testing your concept, and creating a foundation for long-term business success. When done right, it provides validation, initial customers, and advocates who feel personally invested in your success.
It’s extremely hard work, and it’s not foolproof. Give yourself enough time to avoid making make-or-break decisions about things like costs under extreme time pressure.
Crowdfunding requires significant preparation, transparency, and community engagement, but the rewards extend far beyond the money. For founders looking to launch something new, crowdfunding offers a path that combines financial support with marketing power and community building.
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