What is Crowdfunding?

Area of expertise: Finance & Fundraising
Type: FAQ

Crowdfunding is how you could raise money for your project from a large number of people all putting in relatively small amounts of money.

How do I set up a crowdfunded project?

If you have an idea for a project that you think might be suitable for crowdfunding you will need to create a project on a crowdfunding website. 

There is an ‘Ealing Hive” on Space Hive which is one crowdfunding website where local people  may be looking  for projects. There are also lots of other crowdfunding websites that you may feel are more suitable for your particular idea. Some crowdfunding websites are more geared towards setting up business ideas so you may want to look for those that have a large number of community projects. 

Once you have created your project it’s important that you tell people about it and encourage others to share your idea too. A range of communications and promotional approaches may be used but social media (Twitter, Facebook etc) are particularly effective.

The “crowd” can then pledge money to support your project although no money is actually taken until your target is reached. 

Once you have reached your target payments will be taken from those who have pledged cash and your project is ready to go!
  
Who can be a crowdfunder?

Essentially, anyone can be a crowd funder, investing in or donating to businesses and projects of their choice. What is important is that investors and donors can easily understand what they are putting their money into, what the risks are, where they are paying fees and what the possible return might be.

Is there a minimum or maximum amount for investment or donation?

These will vary according to the crowdfunding platform you use. In some cases investments and donations can be as low as £5, with no limit on the amount you invest, others may cap the total investment you can make.  

As a consumer how am I protected?

Most crowdfunding opportunities fall outside the Financial Services Compensation scheme. As a crowdfunder you are making your own assessment of opportunity and risk. Platforms that are authorised and regulated by the FCA must also comply with a number of rules with respect to how their customers are treated.

What is the difference between a donation and an investment?

A donation is essentially a gift: you give money to a project that you like. An investment is where you pay money to a company in the hope of making a return over time.

Why are some crowdfunding platforms regulated and not others?

Every crowdfunding platform has made its own assessment as to whether it needs to be regulated by the FCA or any other body in order to conduct its business. 

How do I know a crowdfunding platform is following the code of best practice?

In the interest of protecting consumers and promoting the growth of crowdfunding, the leading platforms feel it is important that there be a common set of standards to which everyone adheres.
Crowdfunding platforms with the black UK Crowdfunding Association’s logo have signed up to this code of practice.  
 
What happens if a crowdfunding platform I use goes bust?

The UK Crowdfunding Association’s code of practice requires members to segregate investors or donors money from their own, which means that your money is kept separate and still legally controlled by you, unlike in a bank. If the crowdfunding platform goes bust then such money is not accessible to its creditors and should be returned to investors or donors. Any money is held by the investee projects and are also separate from the crowdfunding platform.

Downloads

Transform Your Space - Top Tips.pdf | 223K | Top Tips for Crowdfunding Campaign My timeline.pdf | 213K | My Crowdfunding Campaign – my timeline and an example My audience.pdf | 202K | My Crowdfunding Campaign – getting my supporters Ranking supporters.pdf | 199K | My Crowdfunding Campaign – ranking my supporters Planning your Spacehive campaign London.pdf | 3237K | Presentation from Spacehive Event July 2015