The advent of social media together with a lack of funding availability from traditional sources such as banks has led to a rising popularity of crowdfunding.
Crowdfunding is the very descriptive name given to the concept of asking a “crowd” of people to donate specific set amounts of money for a business cause. The crowdfunding investor gets various rewards in exchange for the ‘loan’ of their money. Many forward thinking businesses are trying crowdfunding as a way to raise funds for an expansion or project which negates the need to pay high interest rates to banks, or give away big equity shares to angel investors.
Where The Rising Popularity Crowdfunding Began
Crowdfunding for finance first came about in the music industry, with website Slicethepie. Slice The Pie were musicians who found it very difficult to get funding so in 2007 they created an online community of music fans who could contribute funds if they liked the music and were prepared to take a gamble.
Co-ops are also a form of crowdfunding, and again their popularity is rising too. The internet has opened up bigger possibilities than ever before and has definitely contributed to the rise of crowdfunding for finance. It allows for information to flow around the world rather than just locally as in the past, which increases awareness, and communities can be built or added to with even greater speed due to social media. Groups around the world come together for a common good and all who share an interest in funding a person, project, event, campaign for disaster relief or other cause.
Crowdfunding Retail Bond Examples
1. High-end chocolate maker and retailer Hotel Chocolat used crowdfunding by inviting customers to buy bonds. The ‘Bonds’ pay out in chocolate returns several times per year. Money raised will be used to expand their factory in Britain, to build out their plantation in Saint Lucia, and to open new stores in various parts of the world. Its ‘tasting club’ raised £3.7m in July 2010.
2. Caxton FX has issued a retail bond which provides investors with the chance to earn 7.25% annually over the four year bond term. Return on their investments look much healthier than savings in UK high street banks.
3. Green energy supplier Ecotricity issued a £10m EcoBond in 2010. About 80% of the bond issue went to existing customers and it was heavily over subscribed.
The rising popularity of crowdfunding presents an alternative to the high street banks and an innovative exciting way of raising funds. Great news for SME’s at last perhaps? You may like our other article about collective purchasing schemes here too.