The first step to starting a new business is having a great idea. However, having the right funding in place can take that idea and make it into a reality. One such way is through crowdfunding.
When we originally wrote this blog in 2017, the crowdfunding market was yet to capture the imagination of the UK’s small business community. According to a survey taken last year, only 50% of businesses were aware of crowdfunding as a form of external finance – but only 18% of those knew how to access it.
Despite a lack of knowledge generally as to how to access crowdfunding, there are cases out there where it has proven hugely successful for businesses. This means it is a route well worth considering for future businesses and entrepreneurs. In this guide, we will detail what exactly crowdfunding is and how you can access it.
- What crowdfunding is and the benefits
- When crowdfunding is suitable
- Crowdfunding platforms
- Get financial advice
What crowdfunding is and the benefits
Crowdfunding is an alternative method of raising finance for a business objective. It is unlike traditional angel investment, in which just a few people typically take a significant share in a business. With crowdfunding, an entrepreneur can attract a ‘crowd’ of people who may not have invested in stocks before, each of whom takes a small stake in a business idea by contributing towards an online funding target.
This means your funders can be your average member of the public as opposed to wealthy investors. Unlike a traditional investor, they may not have expertise in your sector or business in general, but your business idea should still appeal to them in some way to make them want to fund you. This also means that the way you ‘apply’ for funding is different: rather than detailed business plans. You will need to find the right hook to encourage funders to give their money to you and your idea using a pitch deck supported by video and a marketing campaign.
The main benefit of crowdfunding, other than raising much-needed capital, is that it creates a strong network of support for your company. The equity model is especially good at creating ambassadors for your brand, promoting it amongst their networks, family and friends and often becoming returning customers themselves. Crowdfunding success stories tend to well-publicised too, meaning your business can benefit from increased reputation by utilising this funding source.
Crowdfunding is still only a small part of the fundraising scene in the UK, but it continues to grow. However, knowing when to use it is crucial to getting it right.
When crowdfunding is suitable
Although crowdfunding can bring great success to a company, it isn’t appropriate for every business. Achieving the funding you want requires you to get the mood and timing right for the people you are targeting.
As we have already touched upon, while your funders might not be massively experienced in business, they will need to have shared interest in your business. It might be that your company solves a particular desire or pain they have in their daily lives; it fills a niche community they are part of; it aids their local area; or, it aligns with their values. Regardless, you must be able to put across the value your business can deliver in a way that connects with the funders. So, if you have a strong story behind your business or you believe it in some way carries a benefit to the broader world – such as being a charitable cause – crowdfunding may be particularly useful for you.
While being able to serve public interest is key in crowdfunding, interest can change drastically over time. For example, during times of crisis, what is seen as a funding priority can quickly change. If we consider the recent COVID-19 and ensuing economic downturn, many businesses used crowdfunding as a way to ensure the survival of their companies during their financial struggles. During emergencies like this, funders are much more likely to feel charitable and focus their investment on businesses to which they are loyal to help them get over the obstacles they are facing.
Similarly, they may fund ideas which directly address the issues at hand – such as companies manufacturing PPE or offering online entertainment. If your business idea is entirely unrelated to their current pain-points at that time, you will be unlikely to receive much funding. Your pitch for finance may even seem distasteful and out-of-touch, which could lead to further damage to your brand reputation and future fundraising efforts.
Due to this, it is imperative to understand not only what you are offering before pursuing crowdfunding, but also reading the mood of the public at that time.
Once you have decided crowdfunding is an appropriate funding route for you, it is time to research the platforms to access it.
Crowdfunding platforms tend to be online, allowing businesses an easy way to reach vast audiences. Companies will usually share their pitch publicly, and those wishing to fund can search for different pitches to find one that suits them.
There are many different crowdfunding platforms now available. Most offer equity funding, where people can give money in exchange for a share in your business or one-of-a-kind experiences, limited editions, or copies of the creative work being produced. The different platforms may also vary in their minimum and maximum amounts that a funder can put into your business.
Some of the top crowdfunding platforms include Crowdcube, Seedrs and Kickstarter. Take time to research each platform to find out which you think suits your business best, as this may help you to find the right community of funders for you.
Additionally, bear in mind the power of social media when it comes to crowdfunding. Social media platforms can reach millions of people across the world, so it can help you get impressive visibility of your business idea, which could attract additional funders. If you already have social accounts set up for your brand, you should share your pitch to see what traction you can gain.
Get financial advice
Crowdfunding is a unique type of finance, in that it allows almost anybody to invest in your business. It is also a great way to build a community of ambassadors around your business idea.
However, it is also quite different from standard finance in the way you apply for it – which will be ideal for some businesses and unsuitable for others. The key is to understand what funding you need and why, and whether crowdfunding can help you to achieve this.
If you need advice on how whether crowdfunding is right for your business or want to know what other funding solutions are out there, we can help.
Our team of experts have experience across a range of finance types, so we can help you to find the right funding solution for your unique business challenges.
Please call the team today for a free consultation on 0203 327 0567 or email [email protected].