Has the novelty worn off? One doesn’t hear much in the media about crowdfunding nowadays – good or bad. Is it still an option for business start-up funding, or has the gilt worn off the gingerbread?
If you delve into the stats and facts surrounding the current state of crowdfunding in the UK you’ll find it is still happening, and at a very healthy rate. In fact in the first quarter of this year £47-million in equity-based Crowdfunding was invested in 82 deals on the major platforms (this according to the Beauhurst Crowdfunding Index).
Crowds are still putting their money in equity based deals, despite the high risks which have been loudly spelt out by thousands of critics over the past few years, since the phenomenon of crowdfunding online really took off.
It would appear that far from tailing off, crowdfunding of start-ups has become the norm – it’s no longer a remarkable source of funding, thus it is not so widely reported on as it used to be.
Looking at the available statistics it would also appear that the crowd have heeded all the warnings, and become more discerning and careful with their investments. The sum total of crowdfunding investment continues to grow, but the number of deals made seems to be levelling off.
CrowdCube and Seedrs are – as ever – the UK’s largest crowdfunding platforms when it comes to equity investment. Now and again breathtaking success stories still emerge, and recently some pretty impressive exits have started to come to the fore.
Equity crowdfunding is only one model of crowdfunding – the others are loan-based, reward-based or donation-based. All are well represented in the UK, but only loan-based and equity crowdfunding are regulated by the Financial Conduct Authority (FCA). The rules attached are designed to make them fairer and safer forms of investment than they would otherwise be, and this makes them more attractive to investors.
The fact remains, however, that around 85% of start-ups fail in the early stages (this according to the FCA), so even if they have raised the crowdfunded capital to set up in business it’s unlikely their investors will see any return. On the slim chance they pick a winner, though, investors stand to make huge profits.
So, knowing the money is out there, and with some promotional effort you could crowdfund a stake to start your business, you may well decide to go that route rather than stick to more mainstream funding methods – like borrowing from friends, family, going for venture capital or the bank.
If you are thinking of crowdfunding, here are 5 points (gleaned from numerous sources in the know) to bear in mind:
- Do some market research before you go ahead with a crowdfunding campaign. You need to be able to gauge whether your business idea would attract crowdfunding investment. Although it suits most, crowdfunding may not be appropriate for your business plan.
- Before you lodge your business plan with any crowdfunding platform, make sure you’ve done your homework and thoroughly understand what’s involved, what the legalities are, and that the method and platform you have chosen are reputable and above board.
- Be prepared to put in a lot of time and effort – with a solid strategy – to make your campaign successful. You can’t just sit back and wait for the money to magically roll in – utilise every means possible to put your message out there. In the long run this PR effort will pay dividends when your business becomes a reality – it’s a good introduction to harnessing the marketing power of the digital media. This is expertise that will benefit your business as you move ahead.
- Make sure you protect your business intellectual property (any patents or trademarks for example) before you start your crowdfunding campaign. Once the details of your business plan are out there, your intellectual property is vulnerable.
- It’s important to remember that more than money is at stake with a crowdfunding campaign. Building investor support goes hand in hand with building a customer/client base and validation of your product or service. If the fundraising fails your reputation as an entrepreneur and your business idea will take a hit.
Let us know your views and experiences of crowdfunding, so we can share them with others via our blog for small business! Email social@dentons.net.