Crowdfunding explained : a guide for small and medium enterprises on crowdfunding and how to use it.
Date: 2017-04-06
Institutions: Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs
Subjects: Internet, business policy, corporate finance, information technology, investment aid, shareholding, small and medium-sized enterprises, user guide

Crowdfunding 

Explained

A guide for small and medium 

enterprises on crowdfunding 

and how to use it

Contents 

What is crowdfunding 

-  Crowdfunding explained 

-  More than just the money 

-  What are the risks? 

The different types of crowdfunding 

-  Peer-to-peer lending 

-  Equity crowdfunding 

-  Rewards-based crowdfunding 

-  Features of the different crowdfunding types 

How to do it 

-  Peer-to-peer lending 

-  Peer-to-peer lending - a case study 

-  Equity crowdfunding  

-  Equity crowdfunding - a case study 

-  Rewards-based crowdfunding 

-  Rewards-based crowdfunding - a case study 

Next steps 

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What is crowdfunding?

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Crowdfunding explained

Crowdfunding is a way of raising money to finance projects and businesses. It enables fundraisers to 
collect money from a large number of people via online platforms.

TRADITIONAL FUNDING

CROWDFUNDING

Large amounts from one,
or a few, sources

Many small sums from 
a large group of individuals

Crowdfunding is most often used by startup companies or growing businesses as a way of accessing 
alternative funds. It is an innovative way of sourcing funding for new projects, businesses or ideas.

It can also be a way of cultivating a community around your offering. By using the power of the online 
community, you can also gain useful market insights and access to new customers.

This guide is aimed at entrepreneurs, businesspeople and companies, especially small and medium 
enterprises. If you are thinking about ways of financing a new business or idea, or have heard about 
crowdfunding and want to learn more, you may find this guide useful.

How does crowdfunding work?

Crowdfunding  platforms  are  websites  that  enable  interaction  between  fundraisers  and  the  crowd. 
Financial pledges can be made and collected through the crowdfunding platform.

Fundraisers are usually charged a fee by crowdfunding platforms if the fundraising campaign has been 
successful. In return, crowdfunding platforms are expected to provide a secure and easy to use service.

Many platforms operate an all-or-nothing funding model. This means that if you reach your target you 
get the money and if you don’t, everybody gets their money back – no hard feelings and no financial loss.

There  are  a  number  of  crowdfunding  types  which  are  explained  below.  This  guide  provides  unbiased 
advice to help you understand the three most common types of crowdfunding used by profit-making 
SMEs and startups: peer-to-peer, equity and rewards crowdfunding.

 
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Main types of crowdfunding

Peer-to-peer lending
The crowd lends money to a company with the understanding that the money will be repaid with interest. 
It is very similar to traditional borrowing from a bank, except that you borrow from lots of investors.

Equity crowdfunding
Sale of a stake in a business to a number of investors in return for investment. The idea is similar to how 
common stock is bought or sold on a stock exchange, or to a venture capital.

Rewards-based crowdfunding
Individuals donate to a project or business with expectations of receiving in return a non-financial reward, 
such as goods or services, at a later stage in exchange of their contribution.

Donation-based crowdfunding
Individuals donate small amounts to meet the larger funding aim of a specific charitable project while 
receiving no financial or material return.

Profit-sharing / revenue-sharing
Businesses can share future profits or revenues with the crowd in return for funding now.

Debt-securities crowdfunding
Individuals invest in a debt security issued by the company, such as a bond.

Hybrid models
Offer businesses the opportunity to combine elements of more than one crowdfunding type.

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More than just the money

Crowdfunding can offer more than just financial benefits. It can give you access to a large number of 
people  who  may  be  interested  in  your  project  or  business,  who  could  also  provide  you  with  valuable 
insights and information.

Non-financial benefits of crowdfunding
•  Proof of concept and validation: Crowdfunding gives you a reality check; you can see if others 

share the belief and value in your project or concept. If they are willing to contribute it is a strong 
validation that your market approves.

•  Help with other forms of financing: A successful campaign can not only be a proof of your concept, 
but also highlights that there is a market for your business that people believe in. This is very useful 
when seeking additional finance from other types of financiers such as banks, venture capital, angel 
investors, as you might seem less risky to them, or get better terms and conditions.

•  Access to a crowd: You are addressing a huge audience of individuals, some of whom may have 

valuable expertise and insights. Crowdfunding in general enables you to interact with them in a new 
way that provides valuable feedback without cost.

•  Powerful marketing tool: Equity and rewards crowdfunding can be an effective way to present a 
new product, new company, or expansion, by pitching directly to the people that are likely to be 
customers. You can create buzz and interest, even before the product has hit the factory floor.

However,  you  should  be  aware  that  crowdfunding  isn’t  a  magic  wand.  Like  any  business  venture,  it 
requires a significant amount of concentrated effort and hard work.

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What are the risks?

There are many advantages to crowdfunding, but there are also potential risks that you should be aware 
of. This section will help you understand and navigate the potential pitfalls of crowdfunding.

There’s no guarantee you 
will reach your target

Much  like  any  other  business  venture,  there  is  a 
risk  of  not  succeeding.  If  you  do  not  reach  the 
fundraising  target,  money  collected  during  your 
campaign will have to be returned to investors.

Advice: Analyse carefully all possible ways 
how your fundraising campaign could succeed. 
If you fail, you can try again; some of the 
biggest successes tried a couple of times before 
they found the winning formula. Contractual 
arrangements should provide clarity on rights 
and obligations of the parties involved in case 
funding target is not reached.

Your intellectual property 
becomes public

Your  ideas  are  online  for  lots  of  people  to  see 
and  there  is  a  risk  of  someone  duplicating 
your proposition.

Advice: Ask the platforms on which you intend 
to list; they may offer general advice on 
protecting your intellectual property rights. 
Your local Chamber of Commerce or 
government agency may also be able to help 
you, but if you are in doubt you should seek 
independent advice.

Underestimating the costs

It  is  common  to  underestimate  just  how  much 
time  and  resources  crowdfunding  takes.  Some 
forms  of  crowdfunding  may  create  additional 
costs. For instance, in case of equity crowdfunding, 
administrative costs may increase along with each 
issue of shares. You may not have enough capacity 
to  deal  with  new  investors,  to  provide  ongoing 
information  about  the  project  or  to  process 
corporate rights of shareholders.

Advice: Be aware of the different steps you 
need to take, allocate enough time and work 
out a plan that keeps a margin for error and 
delay (for instance, about 10-20% of the total 
budget / time).  Remember that you will need to 
allocate resources for before, during and after 
the campaign. You might want to ask for the 
help of legal counsel on legal issues related 
to crowdfunding.

Reputational damage

The  market  is  now  quite  competitive  and  you 
will likely have experienced investors looking into 
your  offering.  Any  sloppiness,  errors  or  under-
preparation  will  reflect  badly  on  you  and  your 
project or business.

Advice: Make sure that you do your research 
thoroughly. You will find further resources in 
the ‘Next steps’ section of this guide.

Advice: Remember that this is a different kind 
of business venture. You may need to tailor 
your approach to cater to people who may not 
be familiar with your sector.

Advice: Make sure you fully understand the 
crowdfunding process before committing so 
that you can be sure you are able to deliver 
what you are promising.

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Disclosure and legal requirements

Advice: Always check with the platform 
and your local supervisory authority what 
documents you will need to provide and 
what the costs will be for complying with the 
requirements, and include this in your cost plan. 
There might be complex issues to deal with at 
significant costs, so you might want to ask for 
the help of a legal counsel.

Law-breaking

The law around crowdfunding is still evolving and 
so  it  could  be  unfamiliar  to  many.  If  you  do  not 
acquaint yourself with the relevant EU and national 
laws you could unknowingly breach them.

Advice: Always check the legislation and 
requirements. Generally the platform 
offers general advice and points you to the 
appropriate place for more specialised guidance 
such as your local Chamber of Commerce, 
local supervisory authority or the appropriate 
government department.

Problems with the platform

There may be risk of bogus platforms.

Advice: Make sure that you chose established 
and respectable platforms that have a good 
track record and no signs of trouble. Aim for 
those in well-regulated environments, where 
you are familiar with the legislation and you 
can be sure that your rights will be upheld.

Issues with responsibilities towards 
investors and investor dynamics

Dealing with a large and potentially diverse set of 
backers  brings  different  issues,  expectations  and 
demands. Not understanding a contributor’s rights, 
complaints  handling  or  enforcement  mechanisms 
can  create  problems,  particularly  with  equity 
crowdfunding,  which  comes  with  some  loss  of 
control over your business.

Advice: Research the possible implications 
and liaise actively with the platform to fully 
understand your responsibilities. See where the 
platform can help you and what its role is.

Advice: Before engaging in equity crowdfunding, 
always think very carefully about potential 
issues at later stages. You will need to offer 
investors certain rights to make the investment 
attractive. Be sure you are aware of what 
responsibilities these investor rights mean 
for you.

Advice: Always construct the corporate 
governance structure and mechanisms in full 
knowledge of the requirements and obligations. 
These are complex issues, so where necessary 
seek the advice of qualified experts.

Investors wishing to exit

One  day  your  investors  might  want  to  sell 
their  share,  or  new  investors  may  decide  to  join 
your venture.

Advice: You need to have an exit strategy 
prepared for investors in case they choose 
to take their money out. You will also have 
to know how to deal with accepting potential 
new investors in the future, because this 
may dilute the value of the shares of your 
original investors.

Advice: Consider very carefully already at the 
outset the possible impact on your business 
of a change or exit of investors and consider 
asking for legal advice already before offering 
any equity to investors.

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The different types 
of crowdfunding

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Peer-to-peer lending

Description

Peer-to-peer lending (sometimes called crowdlending), is a direct alternative to a bank loan with the 
difference that, instead of borrowing from a single source, companies can borrow directly from tens, 
sometimes hundreds, of individuals who are ready to lend.Crowdlenders often bid for loans by offering 
an interest rate at which they would lend. Borrowers then accept loan offers at the lowest interest 
rate. Internet-based platforms are used to match lenders with borrowers. Due diligence is carried out 
for each loan request, as crowdfunding platforms have a duty to protect both businesses and investor 
interests. Platforms normally require financial accounts and a trading track record.

Key features
•  Greater flexibility with interest rates: If your campaign is popular, investors may compete with each 

other to lend money to your business and offer better interest rates to secure the deal.

•  You may get a loan when refused by a bank.

•  Loan sizes can vary greatly so can cater for most needs. The minimum loan size is very small, 

which encourages a wide range of lenders to participate.

•  The loan is repaid through direct debits to the platform, which distributes your repayments out to 

the lenders.

•  Disclosure requirements are like that of a bank. Unlike the bank, they are made public to 

all crowdlenders.

•  As with a traditional bank loan, you are legally required to repay the loan.

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Equity crowdfunding

Description

Equity crowdfunding consists of selling a stake in your business to a number of investors in return 
for investment. The existence of equity funding is well established, with private equity, venture capital 
and angel investing long playing a role in developing companies. The main difference between equity 
crowdfunding and these traditional models, rather than establishing a one-to-one relationship, it is offered 
to a wide range of potential investors, some of whom may also be current or future customers. Equity 
crowdfunding does this by matching companies with would-be angels via an internet-based platform.

Key features
•  You will have to set the terms, and choose how much you want to sell, the price and how investors 

will be rewarded. It requires good expertise to value a venture correctly.

•  The fees payable for raising equity finance on the crowdfunding platform will typically be a 

success fee and legal or administrative fees related to the issue. You may incur additional legal 
and advisory fees.

•  Many people can invest, so you can have lots of small co-owners, instead of few large investors. 

It is usually less costly than being listed on the stockmarket.

•  You need to show that your business is investment-ready, thus you need to produce a business 

plan and financial forecasts. You should also have a good communication strategy, with the most 
important information about your project readily available and easily understandable to 
potential investors.

•  Limited due diligence is usually carried out by the platform and the investor may have the option to 
ask for more information, and you should be prepared to provide this information even if it comes 
at additional costs to you.

•  There are serious legal aspects, the costs of which you should not ignore, such as disclosure and 
legal documents, annual general meetings with shareholders, processing corporate rights, annual 
reports and decision procedures.

•  Investors’ rights can vary. However, typically shareholders have voting rights on key matters of 

running the business, issuing new shares, etc. You should consider how much of the control rights 
over your business you are ready to give to external shareholders. As regards compensation, be 
aware that investors may claim damages to compensate money loss incurred, for instance as a 
result of breach of contract.

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Rewards-based crowdfunding

Description

Rewards-based crowdfunding is where individuals donate to a project or business with the expectation of 
receiving a non-financial reward in return, such as goods or services at a later stage. A common example 
is a project or business offering a unique service (rewards) or a new product (pre-selling) in return for 
investment. This form of crowdfunding allows companies to launch with orders already on the books and 
cash-flow secured (a major issue for new business) and gathers an audience before a product launch.

Key features
•  Funds given don’t have to be repaid; you just deliver the service or the goods promised.

•  Orders are secured before the launch of a new product, and the crowdfunding campaign allows you 

to build your customer base as you raise funds.

•  You are obliged to deliver on your promises on schedule.

•  It is a popular option for startups and entrepreneurs as it provides a way to fund the launch of new 

companies or products.

•  It is particularly suitable for products and services that or are innovative or garner high levels of 

consumer attention.

•  Complicated concepts or products are less suitable for rewards crowdfunding.

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Features of the different 
crowdfunding types

Equity crowdfunding    Rewards-based crowdfunding    Peer-to-peer lending

   ✓ 

   ✓ 

   ✓ 

   ✓ 

Pre-trading 

Pre-profit 

Profitable growing business  

Established and steadily growing 

Established stable business  

Launching new product/service/ brand 

Making acquisitions 

Expanding into new territories 

Investing in new facilities 

Looking to refinance 

In need of capital restructuring 

   ✓ 

   ✓ 

   ✓ 

   ✓ 

   ✓ 

   ✓ 

   ✓ 

  ✓ 

    ✓

    ✓

    ✓

    ✓

    ✓

    ✓

    ✓

    ✓

    ✓

 
 
 
 
 
 
 
     
 
 
 
 
     
 
 
 
 
 
 
 
     
 
 
 
     
 
 
 
 
 
     
 
 
 
 
 
     
 
 
 
 
 
 
 
 
     
 
 
     
 
 
 
 
 
 
 
 
 
     
 
 
     
 
 
 
 
 
 
     
 
 
 
 
 
     
 
 
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How to do it

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Peer-to-peer lending

This section will take you through the major steps of how to approach peer-to-peer lending, and gives 
you  some  more  detailed  tips  and  pointers.  Please  note,  that  these  suggested  steps  are  offered  as 
guidelines only. You might find each step more or less complicated, depending on your project, the size 
of your team, and the amount of time you are able to commit.

Preparation

The early days of your crowdfunding campaign should be dedicated to looking into the world of peer-to-
peer lending and preparing your offer. You should:

•  Research potential platforms and the features they offer.

•  Ensure you understand the rules and legal requirements of the platform.

•  Read as many guides, blogs and ongoing campaigns you can find for inspiration and to learn from 

the experience of others.

•  Contact platforms which closely fit your needs.

•  Carefully prepare and check any financial documents that are required by the platform.

Tip: If you can afford to, try lending a small amount of your own money (say €100) in small sums 
to other businesses. You will get a very good insight into what your crowd-lenders will look for.

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The Fundraising Period

The credit assessment team from your chosen crowdfunding platform will look at all of the information 
you have supplied. If your application is successful, they might tell you which risk category you are to 
be listed under. If your business is approved, it will be listed on the platform for lenders to bid on. Each 
lender will bid their selected amount and interest rate. Once your target is reached, lenders can keep 
bidding, lowering the interest rates, so the more popular your campaign, the better your terms could be.

Don’t forget: Often you will need to provide financial accounts for at least the last two years and 
your credit history. If you don’t already have it, ask a professional for help. Financial accounts take 
time to complete and can add costs.

After the bid

Once the auction finished, the platform will be in touch to confirm the final average interest rate. The 
platform will then send the funds to your bank account within an agreed timeframe.

You then have to pay back the loan and the interest on instalments that you agreed with the platform. 
This is usually done by a direct debit to the platform, which then manages the repayments back to the 
investors’ accounts.

Once the loan is repaid in full, the platform will confirm the end and the operation is over.

Tip: Be available during the entire process as additional questions both from the platform as well 
as investors can come in, needing a very quick response.

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Peer-to-peer lending – 
a case study

This section provides a fictional case study applied to peer-to-peer lending

Isabella’s Pastry Shop

Setting the scene
Isabella is a pastry chef whose sales have been steadily increasing and she has recently moved to bigger 
premises, including a small restaurant that now accounts for 30% of her turnover. However, this has put 
a significant strain on her staff and capacity. To double her capacity she needs to buy a new machine for 
processing dough and additional ovens. This would allow her to double her capacity. The combined cost 
of these new machines is €50 000, which is what she set out to find. Isabella went to ask for a loan at 
her local bank, where she already has a €10 000 overdraft facility and is paying off the final year of a 
€30 000 loan (for the initial investment). However the bank would only offer her a loan of just €30 000 
at a 14.5% interest rate, rather than the 11.5% she previously had in place. She decided to search on the 
internet for alternatives and came across peer-to-peer lending.

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Preparation: day 1 - day 10
Isabella  spent  some  time  researching  everything  she  could  find  about  the  concept  of  peer-to-peer 
lending, paying particular attention to how it worked, which sites offered it and under what conditions/
price and the rules the sites set. She collected and read blogs/articles about peer-to-peer lending and 
looked at other borrowers similar to hers and the deals they had. At the end of that week she felt she 
understood it  and knew enough to apply. To find out more about lender behaviour, Isabella registered 
with a couple of peer-to-peer lending platforms and lent €100 of her own money in tiny sums to other 
businesses like hers. It allowed her to get a better idea of what it is like to be a lender and what people 
will most likely focus on. With this knowledge, she spent the time putting together the financial records 
and other disclosure requirements.

The fundraising period: day 11 - day 20
Once everything was finished and thoroughly checked, Isabella submitted her documents to the platform. 
The  credit  assessment  team  from  the  platform  followed  up  with  her  for  some  additional  financial 
information, including additional filed and management accounts, and they looked at this information 
alongside  the  credit  models  used  by  the  platform.  Soon  afterwards,  Isabella  heard  that  her  business 
had passed the credit assessment. Now that it had been approved, the business could be listed on the 
marketplace for investors to bid on. Some of the lenders decided to get in touch with Isabella via the 
live Q&A tool. They asked her questions to get a bit more detail on how she intended to use the money 
and the profitability of the business over the last couple of years. Happy with Isabella’s answers, her 
€50 000 loan was fully funded by lenders within a couple of days of being listed. She had the choice 
of either taking the average rate offered upon reaching the target, but decided to keep her loan on the 
marketplace for the full seven day auction. Over the remaining days, Isabella watched the interest rate 
come down as more investors bid to lend to her.

After the bid
Once the auction finished, the platform got in touch with Isabella to confirm the final average rate of 
10.3% that had been offered. This was in line with the average for her rating category (B) and was below 
even her original borrowing cost from a bank (11.5%). Isabella drew down the loan and the funds were in 
her bank within three working days. Isabella paid back the loan and the interest on a monthly basis over 
a five-year period. This was managed by a direct debit to the platform, which then managed repayments 
back to the investors’ accounts.

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Equity crowdfunding

This section will take you through the major steps of how to approach equity crowdfunding, and gives 
you  some  more  detailed  tips  and  pointers.  Please  note,  that  these  suggested  steps  are  offered  as 
guidelines only. You might find each step more or less complicated, depending on your project, the size 
of your team, and the amount of time you are able to commit.

Preparation

The early days of your crowdfunding campaign should be dedicated to looking into equity crowdfunding 
and preparing your offer. You should:

•  Research potential crowdfunding platforms and the features and terms they offer.

•  Ensure you understand the rules and legal requirements of the platform, and in your area.

•  Create a timeline and a cost plan.

•  Understand market trends, by looking at how much is pledged for current crowdfunding campaigns 

and what is expected in return. This will help give you a benchmark for your campaign.

•  Contact platforms which closely fit your needs.

•  Carefully prepare and check any financial documents that are required by the platforms.

•  Start building your crowd on social media.

•  Ensure you check the disclosure requirements and legal obligations needed. For high-value 

campaigns, audited accounts will be requested and these can be very costly. Always check with the 
platform and your local authority on what exactly is required and how much will it cost.

Tip: If possible always try to find a company that has succeeded. Ask them about their experience 
and if they would mentor/help you. It will save you a lot of time and their advice could help 
improve your campaign.

Planning the pitch

If your application to the platform is successful, you should finalise your business plan and financial 
offer. It is important to be prepared; ensure your figures are accurate and have back up evidence for 
your statements. Be sure you can show for instance:
•  The valuation of your business and the logic behind it.

•  The financial performance and forecasts.

•  The amount of equity that you are giving away and why.

Telling your story in a compelling way, with easily understandable descriptions of your product or service 
and the financials, is essential. A multi-channel approach might be very helpful, including videos, social 
networks, live presentations. Ask for feedback from friends and potential customers to keep you on track. 
It’s important that you:
•  Consider your audience and what they are likely to want to know.

•  Are succinct but make sure your knowledge, skills and determination for your business shine through.

•  Clearly illustrate the financials with links to where to find more information.

•  Tell your story in a visually pleasing and engaging format.

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Creating the pitch

Ensure that you have a good website: A well-designed, informative and appealing one will go a long way 
to emphasising to investors that you are serious about your business.

Some  of  the  most  effective  campaigns  include  a  very  short  two-minute  (or  less)  video.  In  it  you 
should clearly:
•  Say what it is you hope to do and why.

•  Introduce yourself and your team.

•  Explain the performance of the business.

•  Show how you will spend the money.

•  Say what the financial returns are.

Early outreach is essential. It has been shown that campaigns that get above 20% of the target in the 
first few days are much more likely to succeed. You should be active on social media and begin building 
your crowd by creating and joining conversations.

The Fundraising Period

You should be active with the crowd, online and offline:
•  Motivating the crowd, encouraging them and sharing it with their friends.

•  Being active on social media promoting the campaign and making it more visible.

•  Talking to journalists, conferences, trade fairs etc.

•  Responding to questions, suggestions and queries.

Tip: There are websites that help you to schedule posts and manage multiple social media 
accounts at once.

Post-campaign

Now the campaign is over you should deal with all of the administrative steps, such as registering new 
ownership and changing the status of a company. In particular you should:
•  Arrange the new set-up of the company. You have now gained several investors and business 

partners. This means, most likely, a new governance structure and procedures will need to be put 
in place. If you have questions ask a professional, a lawyer, or your local chamber of commerce 
for support.

•  Maintain investor relations. Depending on the set up, the decision-making process can change, and 

you should remember to accommodate your new shareholders.

•  Prepare the exit for your investors. You will have to give back the returns to our investors (profit 

share, dividends, share buy-back etc).

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Equity crowdfunding – 
a case study

This section provides a fictional case study applied to equity crowdfunding

Oscar’s Plastics Factory

Setting the scene
Oscar owns a large plastics business in Spain, with 20 full time employees on the factory floor and another 
10 in sales and administration. He had been thinking about expanding his operations to other European 
markets, but in order to do that he needed capital to expand the capacity of the factory and hire more 
staff to manage the expansion. In total Oscar calculated that he needed about €1.2million. Oscar had 
approached some private equity and VC funds one or two of which were interested, but wanted a 26% 
stake in the company and involvement in the strategic decisions, including a very ambitious expansion 
plan that Oscar felt could put his business at risk. After searching for alternatives, Oscar came across 
equity crowdfunding and realised it could be a way to raise the necessary capital without the need to 
relinquish so much control.

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Planning the pitch: days 1-10
Oscar began by searching for everything that he could find on equity based crowdfunding, what it was 
and how it worked. He also researched which sites offered it and under what conditions and fees. He 
decided to give it a try, aiming to give away less of his company, and less control than expected by the 
venture capitalists. Oscar chose a crowdfunding platform with a large number of investors already on 
the platform but in the knowledge that he could not rely on them alone. In order to get their interest and 
attention he would need to bring his own crowd too – those who knew him and his business would help 
to raise his profile with other investors. He decided that aiming for a €1.2m target was reasonable, and 
that based on forward valuation, offering a total of 20% of the company would be fair and sufficient. 
Oscar knew that the platform would check the accuracy of his underlying numbers, but that it is up to 
the investors to decide on the valuation itself. He therefore took care to explain the reasoning behind 
his valuation.

Creating the pitch: days 11-30
Oscar  spent  a  lot  of  time  working  out  the  most  direct  and  relevant  way  to  present  the  numbers.  He 
worked closely with an advisor, recommended by one of the platforms he spoke to, who was able to 
give him valuable and objective feedback at each stage in crafting and honing his plan. Oscar realised 
that he would need to lead with a short, two or three minute, video. He hired professionals and the video 
was shot in a day with scenes from the factory floor, products and Oscar’s commentary. Oscar checked 
and rechecked his campaign for gaps or inconsistencies. He also got some very good feedback on his 
campaign  from  the  platform’s  advisors  and  they  answered  his  technical  and  legal  questions.  Oscar 
heard from various people on and offline that they were very interested in his proposition. He also had 
conversations with a few key people keen to invest and when he realised that between them they would 
be likely to give him a flying start of 20-30% he knew he was ready to launch his campaign.

The fundraising period: days 31-60
Oscar made sure he was active on social media promoting the campaign and making it visible. He found 
that his crowdfunding quest and the stories around it piqued the interest of local journalists and he was 
also featured in a national trade journal.

Post-campaign: Days 61 - 80
Oscar quickly reached almost 30% of his target– mostly from those already familiar with him and his 
business, who knew that his campaign was launching. Within a three weeks or so he reached his target. 
Rather than commit further equity, an option he had considered and planned for, Oscar decided to finish 
the campaign early and take it off the platform with a successful outcome. The first thing Oscar did 
was to thank all the people involved and welcome them as new co-owners of the company. He worked 
with  the  platform,  which  had  all  the  systems  in  place  to  issue  share  certificates  and  deal  with  the 
other formalities.

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Rewards-based crowdfunding

This section will take you through the major steps of how to approach rewards-based crowdfunding, and 
gives you some more detailed tips and pointers. Please note, that these suggested steps are offered as 
guidelines only. You might find each step more or less complicated, depending on your project, the size 
of your team, and the amount of time you are able to commit.

Preparation

The  early  days  of  your  crowdfunding  campaign  should  be  dedicated  to  looking  into  rewards-based 
crowdfunding and preparing your offer. You should:
•  Research potential platforms and the features and terms they offer.

•  Ensure you understand the rules and legal requirements of the platform, and in your area.

•  Create a timeline and a cost plan.

•  Understand market trends by looking at how much is pledged for current crowdfunding campaigns 

and what is expected in return. This will help give you a benchmark for your campaign.

•  Contact platforms which closely fit your needs.

•  Carefully prepare and check any financial documents that are required by the platform.

•  Start building your crowd on social media.

Creating the pitch

If your application to the platform is successful, you should be able to tell your story in a compelling way, 
with easily understandable descriptions of your product or service. But this is not easy: you will certainly 
need feedback from friends and potential customers to keep you on track. It’s important that you tell 
your story in a logical but passionate way, and do it in a visually pleasing, engaging, format.

Some  of  the  most  effective  campaigns  include  a  very  short  two-minute  (or  less)  video.  In  it  you 
should clearly:
•  Say what it is you hope to do and why.

•  Introduce yourself and your team.

•  Say how you will spend the money.

•  If you raise more than your target (called a stretch target), show how that additional money will be 

spent to further enhance the business.

Your rewards need to be exciting; at least one of them should be unique to the crowdfunding campaign, 
something only your backers will have. Research other campaigns for inspiration. Don’t forget that pre-
selling your product is already a good reward for your crowd. It’s more difficult if your business offers 
a service, rather than a new product, but it’s about getting creative and coming up with rewards that your 
crowd will like and want.

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Fundraising period

During  the  fundraising  period  you  should  be  active  with  the  crowd,  online  and  offline.  A  rewards 
crowdfunding campaign works best if consumers can see the passion behind the project or business. You 
should approach the project with energy and enthusiasm.

You should:
•  Motivate your crowd, letting them know that the campaign is live. Encourage them to participate 

and to share it with their friends.

•  Be active on social media promoting the campaign and making it more visible.

•  Talk to journalists, conferences, trade fairs etc.

•  Respond to questions, suggestions and queries.

Tip: There are websites that help you to schedule posts and manage multiple social media 
accounts at once.

Post-campaign

If you have been successful in raising your funds you can’t just take the money and move on, there is 
much more work to be done. If you haven’t reached your target, please don’t worry. You can learn from 
your mistakes and try again.

Remember to thank your crowd, and maintain connections with those who were particularly interested 
in your product. If you were not successful, ask for tips on how to improve.

If you were successful, ensure that you can deliver on your promises of rewards to all your backers in 
the time frame promised by creating a time plan. Finally, remember to conduct all administrative tasks 
such as paying taxes.

Don’t forget: If you intend to pre-sell your product, you might have to register as a VAT payer. 
Check with your local authority.

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Rewards-based crowdfunding - 
a case study

This section provides a fictional case study applied to rewards-based crowdfunding

Carla’s Designer Lights

Setting the scene
Carla is a designer based in Prague. She has recently finished building a prototype of her designer lighting 
system. It is an ultra-modern concept using recycled industrial materials and the system received praise 
at last year’s Milan’s Design expo. She has lined up a manufacturer that will develop the main parts as 
well as a small team to put the lights together, arrange deliveries and installations. In total this means 
that in order for Carla to start her business she needs to find €41k to cover her costs during the first six 
months. Given that she wants to sell each of the lights at €200 a piece this means that she needs to sell 
205 pieces to cover her costs for the first 6 months. She considered approaching the bank for a loan but 
given her lack of collateral, outstanding student loan and short time in business, she realised she would 
not meet the basic qualifications. She decided to try crowdfunding.

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Preparation : days 1-10
Carla  spent  the  first  week  researching  crowdfunding  websites.  She  collected  and  read  blogs  and 
articles about rewards crowdfunding, and she identified and investigated interesting examples that 
were  similar  to  hers  and  that  were  successful.  By  the  end  of  that  week  she  felt  she  understood 
what  it  was  and  what  she  needed  to  do.  Carla  had  her  product  accredited  and  ready  to  go  and 
had already thought through her business concept and financials, so she turned her attention to 
understanding  the  crowd,  her  customers.  Via  social  media,  she  identified  influencers  in  her  field, 
respected individuals with a solidly engaged following that could help share her message. She spent 
time  talking  to  these  people,  joining  conversations  and  making  friends  and  connections,  so  that 
when she was ready to launch her campaign she had a strong online crowd to support her. She chose 
a platform which she knew to be reputable, with the right kind of audience, but on which she could 
still have high visibility.

Creating the pitch: day 11-25
Carla  knew  the  pitch  was  crucial  to  her  success  so  took  great  care  to  carefully  hone  her  story. 
She spent time considering her story and key messages, and the rewards (one of them being the 
designer light itself, a €200 pledge). Carla knew from her research of other crowdfunding projects 
that a short video would be essential to help tell her story, demonstrate the quality of her design, 
and help backers get to know her, her team, and the company ethos. She made a film showing her 
constructing a light and created a webpage for her business, so she could add her products and 
describe them further. Carla also arranged a videoconference with the platform’s advisor to ask her 
to review her campaign and suggest improvements, as well as checking for any technical or legal 
issues applicable in Prague. Carla spent three weeks meeting and speaking to a lot of people, doing 
her research and creating a crowd around her project. When Carla thought that the buzz was large 
enough, she launched the campaign.

Fundraising period: day 26-56
As soon as the campaign launched, Carla started to work on the next phase of the crowdfunding 
process. Carla spent time on her campaign every day, talking to her crowd, letting them know that 
the campaign was live, encouraging them to participate and to share it with their friends. She talked 
to journalists and found a lot of interest in her crowdfunding quest as well as her innovative products 
as a result. Carla received messages from interested people asking questions, and also comments 
suggesting features she had not thought of and other improvements. She took these on board, and 
thanked each one of those making suggestions, as part of her efforts to nurture her crowd.

Post-campaign: day 56-70
Carla’s campaign worked and she was able to exceed her target, with 145 lights sold! It was a great 
success, since not only did she have enough to start production, build stock and cover her costs for 
three months, but also she was also able to sell half of her stock of lights before they even arrived 
from the factory. The first thing Carla did was to put the production process in motion and thanked 
all the people involved. She then created a production timetable and informed her crowd when they 
could expect their lights to be delivered, and began all the admin involved in starting to operate as 
a business. But Carla did not stop interacting with her crowd. She gave them regular updates on 
progress and tapped into their expertise when questions arose. Because they became enthusiastic 
users of her products they also became her best advocates, acting as a marketing and PR platform 
to spread the word further, helping sell even more of her lights.

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Next steps

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More information on crowdfunding

•  Crowdfunding in the European Union

http://europa.eu/rapid/press-release_MEMO-14-240_en.htm

•  Crowdfunding in United Kingdom

http://crowdingin.com/what-we-mean-crowdfunding
http://www.fca.org.uk/consumers/financial-services-products/investments/...

•  Crowdfunding in France

http://www.amf-france.org/Reglementation/Dossiers-thematiques/Epargne-et...

•  Crowdfunding in Italy

http://www.consob.it/main/trasversale/risparmiatori/investor/crowdfundin...

•  Overview of crowdfunding

https://www.vm.fi/vm/en/04_publications_and_documents/01_publications/07...
http://www.europecrowdfunding.org/category/facts-and-figures/about-crowd...
http://www.bruegel.org/publications/publication-detail/publication/844-i...

More information on crowdfunding platforms

•  Overview of crowdfunding platforms in France

http://tousnosprojets.bpifrance.fr/

•  Overview of crowdfunding platforms in United Kingdom

http://crowdingin.com/platforms/all/all#

•  European Crowdfunding Network

http://www.europecrowdfunding.org/

European Union on crowdfunding

•  European Commission on crowdfunding

http://ec.europa.eu/finance/general-policy/crowdfunding/index_en.htm

•  European Parliament on crowdfunding

http://epthinktank.eu/2014/05/08/crowdfunding-in-the-european-union/

•  ESMA on crowdfunding

http://www.esma.europa.eu/news/Press-Release-Investment-based-crowdfunding-needs-
EU-wide-common-approach

More information on other sources of finance for your business

•  European Commission portal on access to finance

www.access2finance.eu

•  The Enterprise Europe Network gives you advice on EU programmes 

and how to find business partners
http://een.ec.europa.eu/

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© European Union, 2015
Reproduction is authorised provided the source is acknowledged.

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ISBN 978-92-79-45189-8
doi:10.2873/313319