Achieving your Business Ambitions through Crowdfunding
Fundraising for your business can be achieved through a range of approaches, from traditional bank lending to government grants, business angels and equity financing. Whatever stage your business is at, there are many routes to accessing the funding you need. Well-established corporate investors are no longer the only choice when it comes to securing a cash injection. Whether you’re selling a stake in your business or offering incentives to attract investments, there’s now a much bigger pool of potential funders to connect with.
To give is to gain
Crowdfunding enables businesses to raise funds from multiple investors so they can set up a new company or propel an existing one to its next phase. The process is managed through online platforms where investors and members of the public pledge money in return for rewards or shares in the business.
Before the days of crowdfunding, only venture capitalists, business angels and wealthy individuals stood a chance of becoming business investors. Through a profusion of ‘reward’ and ‘equity’ crowdfunding platforms, the opportunity to invest is now open to the masses, known as ‘the crowd’. Through this democratised process, entrepreneurs are connecting with thousands of potential investors, some of whom may also be current or future customers.
Insights from the industry experts
Joining an audience of investment-ready business professionals at the recent Startup 2020 Show, GRANTfinder heard from notable speakers from two of the country’s leading crowdfunding platforms.
Crowdfunder – Su Johnston, partnerships manager
This reward-based form of crowdfunding is for start-ups that are looking to ‘get out of the gates’ with a relatively small amount of funding, from a few thousand pounds up to around £100,000. Money is raised by offering rewards, such as advice, products or expertise, in return for investment pledges. This approach can help you to engage with future buyers, rather than surrendering shares in your company.
That first question Su recommends you ask yourself is – why should someone give you money in exchange for something else? The decision is based on these two notions:
People really love your idea and they just want it to happen.
There is something in it for them through the reward on offer.
Su’s methodology for reaching the right audience it to draw a mind map, plotting out every sector and connection you can think of who may want to get involved. The next step is to figure out how you reach them. This could be through industry bodies, networking, emails and social media. The key to success is through communicating who you are, how much money you need and how you’re going to spend it.
Crowdfunder allows businesses to list projects in two ways:
Keep what you raise: This option is usually suited to businesses with other funding options in mind, where any shortfall can easily be plugged.
All or nothing: If you don’t hit your target, all the money goes back to those who pledged it. This approach is attractive to wavering donors, meaning you are better placed to hit your target. The motivation to work harder in the final phase of a crowdfund is also heightened. For example, if you have a £50,000 target and you reach £45,000 by the final week, you’ll be working extra hard achieve those last few donations before the deadline.
Typical Crowdfunder projects last around 4-6 weeks but the preparation time prior to going live will be much longer. Su’s advice is never to list a crowdfunding page with zero donations and just hope for the best. Instead, make sure you know where the first wave of pledges will come from and secure them before listing. Ideally you should go live with at least 20% of your target guaranteed. Following an initial spike in pledges, it’s a good idea to carry out promotional activities in the middle of the campaign and again in the final days to drive maximum momentum.
Seedrs – David Houghton, associate
Seedrs facilities equity-based crowdfunding for start-ups and established companies looking to raise capital through the sale of shares. Over the past seven years, the portal has invested around £800 million in over 500 companies. The focus is on larger deals where businesses are looking to raise funds in the regions of a few hundred thousand pounds through to several million pounds.
David believes the strategic value of Seedrs is the marketing the portal generates because it is a very public form of fundraising, with widespread exposure. Pledgers are reached through extensive digital marketing campaigns on this platform, which gain large exposure.
The service is used as a means to aggregate hundreds of individuals to invest small amounts, rather than approaching one or two people investing large amounts. The average investment pledge on the site is £2,500.
Before the likes of Seedrs were created, the only way to access equity capital for your business would have been to approach wealthy individuals or venture capital firms, which generally have a low risk appetite for investment and can be difficult to access. Through its platform, David says Seedrs is working to democratise venture capital for the modern era, brining investment opportunities to a much wider market.
When asked what types of equity projects are gaining the most interest right now, David told us that cleantech and sustainability are currently the key trends. Seedrs is witnessing an increase in pledgers wanting to support businesses with a social and environmental impact where there is scope for significant returns on investment. So, if you can demonstrate an environmental aspect to your business in 2020, David believes you are well-placed to achieve your investment goals.
Crowdfunding may form part of a mix of fundraising options for your business. For more information about identifying funding, working with partners, and tips on how to write a successful application, GRANTfinder has created a Funding Toolkit which provides guidance on the 7 key steps to funding success.
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