Donation crowdfunding can be useful to businesses

Donation crowdfunding, also called reward crowdfunding, is the third type of crowdfunding covered in my series. It is like Equity and Debt crowdfunding in that it is a way of raising money in small amounts from multiple contributors, but unlike the other two types, it doesn’t appear on the balance sheet.

The “investment” by donors does not generate a monetary return; instead they provide funds for a variety of reasons which mainly relate to receiving benefits or rewards, or simply the “feel good factor” of contributing to a worthy cause

The benefits or rewards can be products or services that arise from the project such as gifts, discount vouchers, event tickets or early release software or products. The other main reason is where the cause is a worthy one such that the donation is more of a charitable nature..

Unlike other forms of crowdfunding, donation crowdfunding is not regulated by the Financial Conduct Authority (FCA).

Clearly it is becoming popular with charities and those supporting social causes, but it can also be a useful way for early stage businesses to raise finance for prototypes or test the viability of ideas and products.

A good example was an online game development company that raised £1,578,316 from 25,681 backers. The fundraising involved raising finance for Elite: Dangerous, a space game where the fundraising campaign benefited from a huge, captive fan base who pledged amounts from £5 to £5,000 plus with five backers pledging the top level of support for a number of levels of in-game bonuses such as credit, rank and cargo, enticing those that wanted to compete in the online universe to get a head start.

We also know of one young product designer who has developed and tested a set of portable, lightweight and easily-storable injection-moulded plastic cutlery for use in the office or outdoors, and is currently using donation crowdfunding to cover manufacturing costs. Donors will get special limited edition colour sets that will be packaged and tailored to the level of the donation. The target is £10,000 and in 10 days since launch in early August 2015, just over £4,200 had been raised.

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