Crowdfunding for business: what is it and how to do it

Have you ever received a clear explanation of crowdfunding for business? You might have a brilliant business idea, possibly even a prototype or some initial traction, but you need capital to scale up. Crowdfunding could be a valuable tool for you.

When running an early-stage startup or SME in the UK, raising capital is often the biggest thing keeping founders awake at night. Traditional funding routes like bank loans or venture capital aren't always accessible, especially when you're just getting started.

The good news is that there's another way to raise money: going directly to the people who believe in what you're building. Enter crowdfunding.

Our opinion on crowdfunding

As fractional CFOs, we work with ambitious founders who are navigating different fundraising options. And in our honest opinion, crowdfunding can be one of the most powerful tools in your arsenal when done correctly.

Yet it's surprising how many entrepreneurs either misunderstand crowdfunding for business or underestimate what it takes to run a successful campaign. So let's demystify it properly.

What is crowdfunding for business?

Simply put, business crowdfunding is the practice of raising money from a large number of people, typically through an online platform. Instead of asking one wealthy investor for £100,000, you might ask 1,000 people for £100 each.

The crowdfunding concept isn't new. Communities have been pooling resources for centuries, but technology has transformed crowdfunding into a legitimate funding mechanism for businesses of all sizes.

Types of crowdfunding

There are various types of crowdfunding for business, each designed to meet different needs. Each offers a different way for individuals and businesses to raise capital from a broad audience.

The four most common types are donation based crowdfunding, where supporters contribute with no expectation of return; rewards based crowdfunding, which offers backers a product or perk in exchange for their support; equity crowdfunding, allowing contributors to invest in return for shares in the company; and debt crowdfunding, where funds are raised as loans that are repaid with interest.

Understanding these models helps you choose the most suitable route for your project or business goals.

Donation based crowdfunding

Donation-based crowdfunding is the simplest form of crowdfunding. People donate money to support a cause, project, or individual without expecting anything tangible in return.

It relies heavily on storytelling, community support, and emotional connection, making it especially effective for projects with a clear social, charitable, or personal impact, but less so for commercial ventures.

Who donation based crowdfunding is good for

Donation based crowdfunding works well for:

• Charities and non-profit organisations seeking funds for community projects, awareness campaigns, or emergency relief.

• Individuals needing support for medical expenses, education, or personal challenges.

• Community groups are raising money for local initiatives such as playgrounds, events, or restoration projects.

• Creative or social-impact projects that resonate with people’s values and inspire goodwill.

Because donors aren’t receiving financial returns or rewards, success depends on authenticity, trust, and a strong emotional pull.

Ways donation based crowdfunding can be carried out

Donation-based crowdfunding can be run through a variety of channels, including:

• Dedicated crowdfunding platforms such as GoFundMe, JustGiving, or GlobalGiving provide tools for collecting donations and sharing your story.

• Social media campaigns that encourage sharing and small contributions from a wide network.

• Email fundraising drives are especially effective for charities and organisations with an existing supporter base.

• Website donation pages are often integrated with secure payment gateways to collect funds directly.

• Live fundraising events, such as charity runs, auctions, or virtual events, where donations can be made online or in person.

A successful campaign has a strong story, clear goals, regular updates, and easy ways for supporters to share and get involved.

Rewards based crowdfunding

Rewards based crowdfunding is where backers receive a product, service, or perk in exchange for their contribution. Think of it as pre-selling your product before it exists. Platforms like Kickstarter and Indiegogo specialise in this model.

Rewards-based crowdfunding allows supporters to contribute money in exchange for a non-financial reward; typically a product, service, experience, or exclusive perk.

The rewards crowdfunding model works particularly well for creators and businesses wanting to test demand, build an early customer base, or fund production without giving away equity.

Who rewards based crowdfunding is good for

Rewards-based crowdfunding is great for:

• Product creators and startups launching new tech, gadgets, or physical goods who want to validate their idea before mass production.

• Creative professionals such as artists, filmmakers, authors, and designers who can offer early access, limited editions, or behind-the-scenes experiences.

• Small businesses seeking to pre-sell a new product or expand their offering.

• Community or cultural projects that can offer experiential rewards such as event tickets, workshops, or named acknowledgements.

Rewards suit projects with a clear, tangible outcome that backers can get excited about.

Ways rewards based crowdfunding can be carried out

Rewards based crowdfunding can be delivered through a variety of methods, including:

• Specialist platforms such as Kickstarter and Indiegogo are built for structured reward tiers and project storytelling.

• Pre-order campaigns where supporters fund the development of a product in exchange for receiving it first.

• Experience-based rewards, offering behind-the-scenes access, workshops, meet-the-creator sessions, or exclusive community memberships.

• Limited-edition products or collectables, appealing to fans and early adopters.

• Tiered reward systems, where higher contributions unlock premium rewards, bundles, or personalised items.

Success depends on offering rewards that feel valuable and exciting, setting realistic delivery timelines, and communicating openly with backers throughout the campaign.

Equity crowdfunding

Equity crowdfunding allows people to invest in a business in exchange for shares or a small ownership stake. Instead of receiving a product or reward, backers become shareholders and can profit if the company's value increases.

This investment model gives more people the chance to invest and helps businesses raise money without relying solely on traditional investors or banks.

Who equity crowdfunding is good for

Equity crowdfunding is suited to:

• Startups and growing businesses that need capital to scale, hire, or develop new products.

• Companies with a strong value proposition that can clearly communicate their growth potential to investors.

• Businesses in innovative or high-growth sectors, such as tech, sustainability, health, or consumer products.

• Founders who want to build a community of engaged supporters, turning customers into investors and long-term advocates.

It works best for businesses with a solid plan, strong financial projections, and the ability to meet the regulatory requirements and conduct the necessary due diligence.

Ways equity crowdfunding can be carried out

Equity crowdfunding campaigns can be executed through various approaches, including:

• Authorised equity crowdfunding platforms such as Crowdcube, Republic (formerly Seedrs) or StartEngine, which handle investor onboarding, compliance, and share allocation.

• Private campaigns in which a company promotes the investment opportunity directly to its customer base or community via email lists or social channels.

• Hybrid campaigns, combining platform promotion with PR, social media, and events to drive awareness and attract investors.

• Investor webinars or pitch events that let founders present their business, answer questions, and build investor confidence.

• Community-led investment rounds, engaging loyal customers who want to support the company’s next stage of growth.

A successful equity crowdfunding campaign needs clear communication, engaging stories, strong financial information, and regular updates to keep investors informed and motivated.

Debt crowdfunding

Debt crowdfunding, also called peer-to-peer (P2P) lending, allows you to borrow money from many lenders and pay it back with interest. It works like a loan, but it’s different from traditional bank loans.

In debt crowdfunding, individuals or groups lend money to a business, expecting to be repaid, usually with interest. Instead of giving away ownership or offering rewards, the business takes out a loan from several small lenders.

Crowdfunding in this way makes it a good alternative to getting money from a bank.

Who debt crowdfunding is good for

Debt crowdfunding is particularly suitable for:

• Established small and medium-sized businesses that have steady cash flow and can demonstrate their ability to repay a loan.

• Companies seeking predictable financing without giving away equity or ownership.

• Projects needing funding for specific purposes, such as equipment purchases, inventory, expansion, or working capital.

• Businesses that may not qualify for bank loans but still have strong fundamentals and a clear repayment plan.

It’s ideal for companies that prefer borrowing over sharing ownership and can offer lenders confidence through transparent financials.

Ways debt crowdfunding can be carried out

Debt crowdfunding can be delivered through several avenues, including:

• Peer-to-peer lending platforms such as Funding Circle, LendingClub, and Assetz Capital match businesses with individual lenders, handle credit checks, and manage repayments.

• Private lending campaigns which are promoted to a company’s own network of supporters, customers, or local community members willing to act as micro-lenders.

• Loan marketplaces, where businesses list their loan request, and lenders choose whether to fund part or all of it.

• Secured or unsecured loan offerings, depending on whether businesses can offer collateral.

• Tiered lending options that allow lenders to contribute different amounts with varying interest rates or terms.

A successful debt crowdfunding campaign requires precise financial projections, a strong repayment plan, transparent communication, and reassurance to lenders that the business can deliver steady returns.

For established businesses looking to scale, equity and debt crowdfunding are most relevant. For startups launching innovative products, rewards-based crowdfunding can be transformative.

Why should you care about crowdfunding?

Raising money is difficult enough, and traditional funding sources often come with strings attached or simply aren't available to early-stage businesses.

Crowdfunding offers several distinct advantages:

Validate your idea through crowdfunding

A successful crowdfunding campaign proves there's genuine market demand for what you're building. It's one thing to tell investors your product will sell; it's quite another to show them hundreds of people have already paid for it.

Marketing and exposure through crowdfunding

Running a crowdfunding campaign creates buzz around your business. You're not just raising money, you're building an audience, generating press coverage, and creating momentum that extends far beyond the funding itself.

Customer engagement

Your early backers become brand advocates. They're invested – financially and emotionally – in your success. This community can provide invaluable feedback, word-of-mouth marketing, and ongoing support.

Flexible funding options

Unlike traditional investment, where you might need to give away significant equity to one or two large investors, crowdfunding lets you maintain more control while still accessing capital.

No debt burden

With rewards based crowdfunding, you're not taking on debt that needs to be repaid regardless of business performance. You're fulfilling orders, which is fundamentally different from servicing a loan.

The magic numbers in crowdfunding

Let's talk specifics because understanding the economics is crucial.

For rewards-based crowdfunding, you need to set a funding target that covers not just production costs but also platform fees (typically 5-8%), payment processing fees (around 3-5%), VAT, fulfilment costs, and a buffer for unexpected expenses.

If you're offering a product that costs £20 to manufacture and you're selling it for £50 through your campaign, don't assume you're making £30 profit per unit.

After all fees and fulfilment, you might be looking at a £15-20 actual margin. Plan accordingly.

In the UK, the most popular equity crowdfunding platforms allow businesses to raise anywhere from £10,000 to several million pounds.

The key consideration is valuation – what percentage of your company are you willing to give away, and at what price?

Remember that equity crowdfunding can work beautifully alongside schemes like SEIS (Seed Enterprise Investment Scheme) or EIS (Enterprise Investment Scheme), which offer generous tax reliefs to investors.

If your business qualifies for these schemes, you can tell potential investors that the government will effectively cover a significant portion of their investment through tax relief, making your campaign considerably more attractive.

Does your business suit crowdfunding?

Not every business is a good fit for crowdfunding, and that's important to acknowledge upfront.

Crowdfunding works brilliantly when:

• The business has a compelling story that resonates with people.

• The product or service is innovative or addresses a clear problem.

• You can demonstrate traction or strong demand signals.

• You're comfortable with public scrutiny and transparency.

• You have the capacity to manage a large community of backers.

Crowdfunding is less suitable when:

• The business model is complex or difficult to explain quickly.

• You're in an industry that doesn't generate emotional engagement.

• You can't afford the time and resources required to run an effective campaign.

• You need money urgently – campaigns typically take months of preparation plus 30-60 days of active fundraising.

How to run a successful crowdfunding campaign

Successfully running a crowdfunding campaign requires thorough preparation and execution, not just setting up a web page and hoping people find it.

Crowdfunding: start with preparation

Preparation is where many founders fall short in crowdfunding. Successful crowdfunding campaigns typically require 2-3 months of preparation before launch.

You need to build an audience beforehand, create compelling marketing materials, produce a professional video, and line up early backers who will contribute on day one to create momentum.

Crowdfunding: build community early

Don't launch your campaign to a cold audience. Start building your email list, social media following, and network of supporters months in advance. The most successful crowdfunding campaigns typically secure 30-40% of their funding target from existing supporters in the first 48 hours.

Crowdfunding: craft your (genuine) story

People back stories, not just products.

• Why does your business exist?

• What problem are you solving?

• Why should someone care?

Your campaign page needs to communicate this clearly and emotionally whilst maintaining credibility.

Set realistic rewards or valuations

For rewards-based crowdfunding campaigns, offer attractive perks at various price points.

For equity crowdfunding campaigns, get your valuation right. Too high and investors walk away; too low and you give away too much of your company unnecessarily.

Plan crowdfunding marketing

A successful crowdfunding campaign requires consistent marketing throughout its duration. This means email updates, social media content, press outreach, and engaging directly with your community: budget time and potentially money for this.

Fulfil promises

Fulfilling your promises matters enormously. If you're running a rewards-based campaign, you must deliver what you've promised. Delays happen, but communication is key. For equity campaigns, keep your new shareholders informed about business progress.

Common mistakes to avoid in crowdfunding campaigns

Over the years, we've seen founders trip up in predictable ways:

Underestimating crowdfunding costs

Factor in everything – and then add a buffer. Running out of money halfway through fulfilment is a disaster.

Neglecting crowdfunding preparation

Launching without a warm audience almost guarantees failure. The platform won't bring you backers; you need to drive them there.

Poor communication

Both during and after your campaign, backers expect updates. Radio silence destroys trust.

Unrealistic timelines for crowdfunding

Manufacturing and fulfilment always take longer than you think. Build in contingency.

Ignoring the crowdfunding platform's terms

Each platform has specific requirements and fee structures. Understand them thoroughly before committing.

The bottom line of crowdfunding for business

Crowdfunding for business is one of the most democratic ways to raise capital. When executed well, it provides not just funding but validation, marketing, and a community of engaged supporters.

However, it's not easy money. A successful campaign requires significant preparation, ongoing effort, and careful financial planning.

Ultimately, crowdfunding for business isn't just about raising money. It's about building something together with people who believe in your vision.

Isn't that what entrepreneurship is all about?

At The FD Consultant, we help founders evaluate whether crowdfunding is right for their business and, if so, how to structure their campaign for maximum impact.

We can assist with financial modelling, company valuation, platform selection, and ensuring your funding strategy aligns with your broader business goals.

If you're thinking about crowdfunding, let's have a chat. Your future backers will thank you, probably whilst they're unboxing your product or checking their shareholding.