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<\/p>\nCrowdfunding refers to the practice whereby projects or ventures are funded by raising the necessary finance (mainly from a large number of people), with those individuals usually contributing relatively small amounts, and is done in almost all circumstances via the internet.<\/p>\n
Commonly referred to as an example of \u201calternative finance\u201d, crowdfunding has emerged from outside the traditional financial system, allowing entrepreneurs to access money without having to go through regulated banks and capital markets. Of course, the traditional system continues to work closely with businesses large and small and presumably won\u2019t be going away anytime soon, but crowdfunding represents an additional avenue that businesses can explore when they are looking at the fundraising options available to them.<\/p>\n
There are different types of crowdfunding \u2013 for example, debt crowdfunding (investors will receive their money back with additional interest), reward crowdfunding (investors contribute to a funding goal with a view towards receiving a discount on a product or service), and donation crowdfunding (where individuals contribute to a particular cause because they believe in it and with no tangible return due to them \u2013 in other words, it can be another way to make a charitable donation).<\/p>\n
However, here, we are going to focus first and foremost on equity crowdfunding, which, put at its most simple, involves investors backing a business \u2013 usually an SME \u2013 and in return taking an ownership stake, in the form of unlisted shares or securities.<\/p>\n
One of the big pluses of crowdfunding is that it streamlines the process. Businesses don\u2019t have to go to banks or VCs; instead, they can go directly to the wider public and pitch their wares on platforms dedicated to bringing companies and individual investors together.<\/p>\n
Businesses will tend to attract an eclectic mix of investor-types via this route, running the gamut from friends to family to random individuals to clued-in investors keeping an eye out for the next big thing.<\/p>\n
On these platforms, the wisdom of the crowd prevails \u2013 if an entrepreneur makes a compelling pitch and enough users buy into their vision, they will most likely secure the funding they are looking for; if they don\u2019t make a solid case, then they probably won\u2019t.<\/p>\n
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\u00a0 The amount of UK equity-based crowdfunding\u00a0 grew from \u00a328 million to almost \u00a3550 million between 2013 and 2020<\/p>\n
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Crowdfunding won\u2019t suit every business, but neither necessarily will the more traditional route. Smaller businesses seeking relatively modest sums to fund expansions won\u2019t necessarily find it easy to secure the funding that they need when going to the established sources.<\/p>\n
VCs most likely won\u2019t be interested as they will be looking for deals with the potential for bigger returns, while banks \u2013 as has been an issue at times post-Great Recession \u2013 may or may not be willing to offer attractive loan terms. Many businesses have found themselves facing that dilemma, and in that situation, crowdfunding represents a viable and practical alternative.<\/p>\n
In the United Kingdom, equity crowdfunding is not merely an alternative means of securing investment, it has become a thriving go-to option. The size of this market has grown consistently throughout the last decade and looks set to continue to do so into the future. In the seven years from 2013 to 2020, the total annual volume of equity-based crowdfunding here grew from \u00a328 million to almost \u00a3550 million.<\/p>\n
If you are an entrepreneur looking to either launch a business or expand an existing operation, and you decide that you want to go down the crowdfunding route\u2026 how exactly do you go about it?<\/p>\n
As with any other means of acquiring capital, there are potential upsides and downsides associated with equity crowdfunding.<\/p>\n
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\u00a0 \u00a0A successful crowdfunding campaign requires a lot of commitment in both time and resources<\/p>\n
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There is no such thing as a sure thing. Any investment represents a risk. Not every business will succeed and neither will every equity crowdfunding effort. However, while there is no sure-fire recipe for success. Crowdfunding experts, when asked, consistently offer up the same key points on how entrepreneurs can give themselves the best chance of success.<\/p>\n
Among the points emphasised over and again are:<\/p>\n
# Be ready<\/u>: It might seem obvious, but it still needs to be said. You must make sure that you\u2019re ready to focus on the campaign when the time comes. This means more than simply having your pitch ready for day 1, it\u2019s also about the timing of the campaign. So, if there is a time of year when you typically expect to be particularly busy or key personnel are likely to be on annual leave, try to ensure that the campaign doesn\u2019t launch around then. You want to be able to devote as much time and focus to the campaign as possible, so try to schedule it accordingly.<\/p>\n
# Be realistic<\/u>: Don\u2019t set the bar too high with your fundraising target, but don\u2019t set it too low either. Most platforms will insist that you hit your target before releasing any funds to you \u2013 an \u2018all or nothing\u2019 approach \u2013 so if you\u2019re over-ambitious with your target you might hinder your own prospects. In a different way, if you set too cautious a target and your idea resonates with investors, you may achieve your goal very quickly, but know that you may have inadvertently left money on the table by not backing yourself and your idea more strongly.<\/p>\n
# Be conscious of the need for a social media strategy as a lead-in<\/u>: The work doesn\u2019t begin on day one of the campaigns. If you want to maximise your chances of success you will look to build awareness around you and what you do in the weeks and months before the campaign actually launches, and this will involve a concerted effort on all your social media channels as you look to increase your base of followers. Once the campaign has been formally launched, the challenge then becomes one of sending regular updates and continuing to nurture the community you have created.<\/p>\n
# Connect with your audience however and whenever you can<\/u>: Take every chance you get to put yourself in front of potential investors and look to connect with them. Speak at conferences, \u201cwork the room\u201d at events you attend, ask for email addresses, make special business cards with the campaign URL details \u2013 leave no stone unturned as you look to make as many people as aware as possible of you and your idea, and, ideally, positively disposed towards both.<\/p>\n
# Be an effective storyteller<\/u>: You have a story to tell, so learn to tell it well. Try to craft a narrative, don\u2019t speak in bullet points. Humans love to tell stories and we love to hear them, and we especially love to hear good<\/em> stories that grab our interest and make us care. Make your story one that people will care about. Also, lest it needs to be said, stick to the truth, but present all those relevant facts in as compelling a way as possible. If you do that, the odds are that you will grab your audience.<\/p>\n # Have a press plan<\/u>: Consider developing a press strategy specifically for your crowdfunding campaign. Know the outlets to approach, try to identify the correct journalists to contact, and then send them an announcement and details of the campaign well in advance of its official start date. If you contact journalists by email in the first instance, always follow up with a phone call the next day or the day after. Remember, journalists are always looking for stories. If you go to one with a well-constructed narrative, you\u2019ve already done half their job for them.<\/p>\n # Make your campaign video as good as it can be<\/u>: If you\u2019ve been using your pre-launch time effectively, you\u2019ll have already put in a massive effort by the time you get around to creating your campaign video. Even if you\u2019ve done everything right up to this point, you still can\u2019t take anything for granted. A so-so video or one that doesn\u2019t do justice to your idea could blow all the momentum you have generated and maybe even sink your campaign just as it formally begins.<\/p>\n You don\u2019t need to include every detail or fall into the trap of thinking that more means more (it can do, up to a point, but beyond that point \u201cmore\u201d and \u201ceven more\u201d can become counterproductive). Brevity is key.<\/p>\n Cover everything that needs to be mentioned, but doesn\u2019t outstay your welcome. The last thing you should do is make your video sound like a love letter from you to you.<\/p>\n Be clear, the purpose of the exercise is to impress viewers and make them want to invest in your idea\/company. Any content that does not serve that overarching goal should be excluded.<\/p>\n To speak to one of our experts about your equity strategy, click here<\/a> or the button below.<\/p>\n