Should you be crowdfunding your business?
Luke Lang of Crowdcube, the world's first investment crowdfunding platform, gives us an overview of how businesses can reap the rewards of crowdfunding.
Investment crowdfunding platforms like Crowdcube enable start-up, early and growth stage businesses, from an array of sectors, raise funds from a crowd of potential investors. In addition to reducing some of the barriers, businesses face when it comes to raising finance, crowdfunding is a way to engage existing customers and brand advocates, many of whom could offer the business a host of skills, experiences and contacts.
For investors, crowdfunding enables anyone to invest as little or as much as they like alongside professionals and VCs, democratising what was once only accessible to an elite few. Whilst crowdfunding investments do come with a risk, as with any other investment, investors are able to research, review and hand-pick investment opportunities at their own leisure.
Hints and tips for crowdfunding success
My advice for businesses seeking investment through crowdfunding would be to start with a compelling pitch that provides a clear overview of the proposition. It's important to cover what makes the business unique, the potential market opportunity and the strategy for growth. People are also inspired to invest if the proposition is something they're already interested in or if it's just too compelling or interesting to ignore, so if the business ticks one or both of those boxes it's off to a good start. It's also important to remember that no investor wants to take on more risk than they have to so the more tangible developments a business can demonstrate, such as sales, contract wins or partnerships, the better. Lastly, investors will want to know how the investment will be used and essentially, how and when they could see a return. All of this needs to be supported with a sound business plan and financial forecasts.
On Crowdcube it takes an average of 43 days for businesses to reach their investment target so crowdfunding does offer businesses a relatively quick and flexible way to raise finance. However, businesses shouldn't be complacent about the success of a crowdfunding raise, it requires an investment of time and effort. So I'd also advise businesses to think of their pitch as a campaign, one which is supported by a well thought-out marketing plan. If a business is able to invest in marketing activity to promote the campaign great, but it's not always possible and it certainly won't guarantee a business will reach its investment target. Businesses can also promote their pitch at a relatively low cost through PR, existing social channels and leveraging of existing networks.
On that point, businesses shouldn't underestimate the power of their own crowd. Reaching the first 10 per cent of the investment target is the hardest part, so businesses that are proactive in promoting the raise among family, friends, customers, suppliers and advocates to gain early momentum are at an advantage.
Is the crowd right for your business?
Businesses from a whole host of sectors are turning to crowdfunding. Tech businesses are always popular with our crowd of 165,000 investors. For example, gamesGRABR, a social platform for gamers to play, share and buy games, raised over £628,000 in two raises, attracting investment from over 390 people. The UK Government also invested in gamesGRABR after Crowdcube were selected as the only crowdfunding platform to partner with the London Co-Investment Fund, which is set to invest £5 million in technology, science and digital businesses through the platform in the next three years. Businesses from the food and drink sector are also popular, such as Chilango the Mexican fast-service restaurant, which raised £2 million via a Crowdcube Mini-Bond after attracting investment from more than 700 people. However, investors are interested in a variety of investments from the quirky and unusual to those with a social, economic or environmental impact – so crowdfunding is a viable funding option for a broad range of businesses.
As a mainstream funding option, crowdfunding is growing in popularity across the board from start-ups looking to raise seed-stage investment to more established businesses raising growth capital, such as the Eden Project which recently raised £1.5 million in less than 24 hours on Crowdcube. It's also fast becoming the first choice for businesses that have access to traditional routes to finance, such as JustPark, which is already backed by Index Ventures and went on to raise over £3.7 million, triple its initial investment target. So if you're a start-up, early or growth stage business looking to raise finance crowdfunding is certainly worth exploring.