There’s never been a better time to start or grow a business in the UK, with more funding options and tax incentives (for companies and investors) than ever before.
Crowdfunding is an option that more businesses are turning to, so if you’re looking to turn a great entrepreneurial idea into a reality, or to scale your business to the next level, here are five reasons why you should consider equity crowdfunding, plus some practical advice on how to succeed with your campaign;
1. Entrepreneurs view crowdfunding as a better fundraising source than banks
Banks were once the be-all and end-all for financing businesses, but less than a fifth of entrepreneurs now think so, according to EY’s 2018 Fast Growth Tracker.
This is partly due to the emergence of new funding streams like crowdfunding, and the reluctance of banks to lend to small businesses that’s followed on from the 2007-08 financial crash.
EY’s poll of 380 UK business owners revealed that while VC fundraising was the most preferable choice, 20 percent cited crowdfunding as the best means of fundraising for their company – just above the 19 per cent who still opted for bank financing.
2. Crowdfunding is generating more money each year
In 2018, £58.2 million transaction value grew 12.6 per cent on 2017 and is part of a rising trend that’s projected to continue for at least four years.
Statista projects the value of transactions made during 2019 UK crowdfunding campaigns will reach £66.4 million – an impressive 14.1 per cent increase on 2018.
3. The UK tops Europe for crowdfunding
The UK is outperforming the rest of the continent in terms of crowdfunding and P2P lending, according to researchers at Cambridge University’s Judge Business School.
While the £4.9bn alternative finance market in the UK is impressive, this is not to say that there aren’t plenty of great opportunities for young and growing business across the rest of Europe. In fact, the European market is growing exponentially.
4. Crowdfunding ‘will generate more income than any one charity’ this year – JustGiving
JustGiving CMO, Charles Wells believes crowdfunding will bring in more money than any single charity in 2019, and believes that young people have been the key to crowdfunding’s success.
While charities are still struggling to engage new generations, crowdfunding platforms are attracting young people in droves.
I’ve seen swathes of young entrepreneurs smash their crowdfunding targets with forward-thinking, disruptive business ideas. Similarly, a plethora of young investors who know how to use technology to find opportunities, to make connections and to make a living from doing so, are regulars on equity crowdfunding platforms.
5. Crowdfunding helps you engage and expand your community
By offering rewards such as discounts or exclusive products and services during your campaign, every new investor you win over is not only likely to become a new customer, but also one of your fiercest allies. You can expect them to fight your case online and stick with you for the long haul.
This is also why crowdfunding campaigns offer such unique opportunities. Whatever you spend on marketing and comms goes towards bringing you investment and new clients, which adds plenty of bang to your buck.
Likewise, every media appearance you can grab will help to boost your company profile, attract new customers and funnel investors to your crowdfunding page. To make sure your efforts are effective, it’s better to work with a PR agency who knows how to court the media.
Finally, crowdfunding comes with its own unique community of investors who’ve scrutinised a colossal number of ideas. To get the approval of the crowd is to have passed a pretty stringent vetting process.
So in each campaign you run, you’ll be able to put your case to a community of thousands, gain crucial feedback and use it to streamline your business.
How to prepare for crowdfunding
Once you’ve decided to raise money by crowdfunding you need to put the foundations in place for a successful crowdfunding campaign. Key steps you need to take are;
Alert your supporters and seek out investors
Many of the campaigns you see smash their targets will have already lined-up a few cornerstone investors. These ‘big fish’ contribute a large chunk of the company’s overall funding target long before the campaign has gone live.
Similarly, campaigners that engage their friends, family, business contacts and customers prior to (and during) their campaigns tend to sail to victory.
Beyond the promise of investment, having a legion of active supporters who are also willing to spread the word help to create a real buzz around your campaign gives you a sizeable advantage. This added electricity, twinned with a fear of missing out, is great for drawing in swithering investors.
Bring just half of your existing network on board and you’re chances of success will be huge.
Get your pitch materials ready
It’s important to not underestimate the time it takes to prepare your pitch materials. For the crowdfunding accelerator I run for Virgin StartUp, we spend a full six weeks preparing pitch materials, compared to just a week discussing how to run the actual campaign itself.
Beyond a pitch page itself, you’ll need a short but engaging video and a marketing plan for starters. You’ll also need to write press releases and other articles, which will be made far easier and more effective with a PR guru, as I mentioned earlier.
Meanwhile, you’ll need to have an accurate financial forecast, a polished business plan and other documents such as a one-page exec summary and a pitch deck to give to investors.
It’s crucial to learn how to prepare a good pitch, so check out my previous guide on 10 Pitching Principles for Entrepreneurs to find out more.
Don’t fluff your timing
While there’s no set method for each campaign, you’ll want to make sure your campaign goes live at the most opportune time. Take too long and you can miss the boat – the competition may have caught up or you may no longer have the time to run a campaign.
Likewise, launching too early can be a big mistake if you don’t have enough evidence to support your business case and win over investors. This is another reason to make sure your valuation is on point – early stage companies have been known to offer far too much equity.
So, work out when you and your team can best run a campaign, and make sure you have all your ducks in a row before you do so.
Don’t lose momentum
In truth, crowdfunding takes up a lot of energy. However, it’s a short period in your company’s lifetime that can be truly momentous for your growth, and for building a tribe of loyal supporters. So, do your best to stay alert.
Make sure you speak to as many investors as possible and answer all their questions on your campaign page. Finally, keep encouraging your team to engage their networks as much as possible, and get the word out on social media. Of course, you should be leading by example.
2019 is still young, and whether you decide to crowdfund or not, there are plenty of opportunities to take your business to the next level and add another string or two to your entrepreneurial bow.
Good luck for the year ahead!
About the author
This guide has been written exclusively for ByteStart by John Auckland, a crowdfunding specialist and founder of TribeFirst. Tribefirst is the world’s first dedicated marketing communications agency to support equity crowdfunding campaigns, and has helped raise in excess of £14.5m for over 50 companies. John is a regular contributor to ByteStart, and you can benefit from more of his expertise and insight into crowdfunding in;
- How to get investors to back your crowdfunding campaign
- 7 Fundraising Mistakes that will stop investors from investing in your company
- How to prepare your business for crowdfunding
- Equity v Rewards Crowdfunding: Which is best for me?
- How the new EIS Guidelines impact crowdfunding
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- How the Enterprise Investment Scheme (EIS) can help you raise funding to grow your business
- What to do when the bank says “NO”
- Revolving Credit Facility – The short term funding solution every small business owner should know about
- Invoice Finance – What is it and how can it help my business?
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