MONEY
The funding expert
Follow
the crowd
Our funding expert, Julian Smith, examines
how to achieve crowdfunding success
A
lternative sources of
finance are growing
rapidly. Between
2011 and 2013,
Nesta estimates that
the market tripled in size, from
£309 million to £939 million.
The biggest segments of that
market were donation-based
crowdfunding, peer-to-peer
(i.e. individual) lending, and
peer-to-business lending.
Equity-based crowdfunding
(as opposed to rewardsbased) was a relatively small
part of the overall market at
£28 million in 2013, but it is
growing fast and hitting some
notable milestones.
The overall UK angel
investment market, which is the
largest in Europe, was estimated
by eban at €84.4 million in
2013, so equity crowdfunding
already represents a big chunk
of that market.
For entrepreneurs thinking
of raising capital from external
sources to accelerate growth,
crowdfunding should now be a
serious consideration.
WHICH PLATFORM?
The UK Crowdfunding
Association currently has
26 listed members, covering
a range of broad-based and
niche platforms. Crowdcube
and Seedrs are currently
two of the most active
equity-based platforms in
the UK. Crowdcube itself
raised £3.8 million from
renowned disruptive tech
investor, Balderton Capital
in July, following it up with a
record-breaking £1.2 million
crowdfund on its own platform.
SyndicateRoom does equity
crowdfunding with a twist;
all deals have already been
sponsored (and therefore
validated to some extent) by an
existing business angel, giving
some additional comfort.
When choosing a platform,
FCA authorisation would be a
pre-requisite, but I would also
consider other factors:
• What is the momentum of
the platform in terms of deals,
amounts raised and investors?
• What is the success rate on
listed deals?
• How much guidance and
support (including promotion)
will you get?
THE SECRET SAUCE
So what makes a successful
crowdfunding campaign? The
fundamentals required are:
1 a business plan;
2 a financial model;
3 a summary of the investment
case; and
4 a video.
Crowd investors, like most
online users, will scan the
summary before clicking on
the video, which provides an
immediate opportunity to judge
the founder/CEO and other
key team members audibly
and visually. The hook needs
to be strong enough here to
make the investor want to
spend more time on the detail
(business plan, numbers and
engagement), so it’s worth
spending a bit of money to get
a slick video produced, and
thinking carefully about how
you position your company to
create that hunger.
More than that though, you
need to think of crowdfunding
as a PR and marketing
campaign, where you build
interest throughout your
network privately, and then
publicly following launch in
order to generate momentum.
Like fundraisings of any
size, momentum is critical in
building confidence. Nowhere
is it more transparent than
crowdfunding, where a guide
tells the world where you are
relative to your target. If that
needle is moving towards your
goal, you’re more likely to bring
in other money alongside.
Crowdfunding is growing
up fast and helping to
develop democratised equity
investment for a growing
population. Capital hungry
entrepreneurs take note!
For
entrepreneurs
thinking of
raising capital
to accelerate
growth,
crowdfunding
should be
a serious
consideration
Contact:
thefundingexpert.co.uk
Twitter: @lefundingexpert
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