However there can be some challenges as well. If done correctly, crowdfunding can offer many advantages such as helping your organization or nonprofit expand its reach and connect with new supporters. Under the new rules, investment-based crowdfunding includes firms that deal in 'non-readily realised securities' - quite a mouthful. Crowdfunding can be used to raise funds for a variety of different organizations, projects, people, or causes. Nothing angers backers faster than failing to live up to your side of the bargain, so make sure you can deliver on everything you promise. Money is exchanged for a share in the business, project or venture. Groves doles out some extra advice: There are thousands, if not millions, of people out there vying for start-up capital. Unlike buying actual shares, I tend to look for the start-ups which are receiving the most attention in terms of investments (amount of people and size of single investments). How does crowdfunding work in practice? Platforms like Republic have made it easy for people (or backers, as they’re often called) to invest with just a few clicks. Unfortunately, where money is changing hands – and especially where it is all done online – there is a risk of fraud, so investors and donators should take care to protect themselves. Crowdfunding can be used to raise funds for a variety of different organizations, projects, people, or causes. You must also take a long-term view to any returns - it can take a while before start-ups begin making the big bucks and investors should not expect instant returns on equity investments. But as a general rule, organizations set up a donations page and drive traffic to that page. Also called peer-to-peer lending or lend-to-save, it allows for the lending of money while bypassing traditional banks. Rewards can be offered such as acknowledgements on an album cover, tickets to an event, regular news updates, free gifts and so on. Sites include: www.abundancegeneration.com, www.banktothefuture.com, www.buzzbnk.org and www.trillionfund.com. This is sometimes referred to as 'microfinance'. Generating an ongoing relationship with these supporters means you’ll also sustain ongoing support for your organization and its work. Nonprofits might use crowdfunding to meet a particular fundraising goal. Companies requiring huge amounts of start-up capital may continue to be funded in more traditional ways - venture capitalists, for example, are likely to carry on plugging the funding gap. Very similar rules apply to investment-based crowdfunding as loan-based - ie the marketing must be fair and not misleading, risks should be highlighted and systems must be in place to separate your money from theirs - and ensure there are adequate capital reserves. Take time to do your research if you are interested in a non-regulated platform. If that number has your eyes jumping out of your head, you’re not alone. There is obviously a large a risk with each start-up that you’ll lose money but that is the nature of investing; I take comfort in the fact that there is also potential to make a large amount of money and it will take only a small amount to succeed to offset a large amount of failures. Raising money for a slush fund might be less attractive to donors than raising funds for a specific project. Watch this video guide by crowdsourcing company Trillion Fund: Let there be no doubt - crowdfunding can be a very risky business. As you write this story, make sure you tell it in a way that is authentic to your brand and its voice. Convert: Robbie Epsom is bullish on crowdfunding opportunities. For all I know I could put a small amount into the next Facebook or Google and be a shareholder right from the start – where even the tiniest of percentage equity can be worth millions! Crowdfunding can add an interesting dimension to a diversified portfolio, especially for sophisticated investors. These include: So the onus is really on the investor to ensure they fall into one of the above brackets, rather than the platform. Instead, take the time to research the terms and conditions of using the platform, whether campaigns like yours have performed successfully on that platform in the past, whether the platform’s functionality aligns with your needs, and so on. As a result, making any return on these types of investments is a long-term thing and the cash is definitely not liquid and can be locked up for years before any return is realised. In other words, the price is not influenced by the opinions of optimistic bullish investors! There are many to choose from and each one is tailored for different needs. Interested in finding out more? UK Sites include: www.banktothefuture.com, www.buzzbnk.org, www.crowdbnk.com, www.peoplefund.it and www.gambitious.com. Here are some top tips from the CFA's Julia Groves to help get your idea noticed: Concerns have been raised that firms benefiting from equity crowdfunding could struggle to access funding elsewhere in the future.Simon Clarke, chairman of the British Venture Capital Association, says: ‘Anything that brings in money to new ventures is a good thing. 'However, there can be a problem if a firm has previously received equity funding through a crowdfunding platform.’. UK investors pulled £145m out of Japan funds after Abe resigned: But does the country now offer value? There, supporters can pledge to back the organization or project at varying levels, which may have rewards attached to them. Individuals might choose YouCaring or GoFundMe; businesses tend to prefer Kickstarter or Indiegogo; and nonprofits often lean toward platforms such as Crowdrise, Fundly, and FundRazr. There is no secondary market to sell your shares or crowdfunding investment. As you move through the rest of the crowdfunding process, keep your goal(s) in mind at all times.