Just what exactly is crowdfunding and how does it differ from kick starters? Do you invest money in return for profits, shares, products or is it simply a glorified way to lose your money?
Speaking from experience having raised money in to my own businesses and sold off to private investors, both options of crowdfunding and kick starter programmes are both great for up and coming businesses as well as professional and amateur investors.
In this article I want to briefly look in to what is crowdfunding and how it can benefit businesses and investors.
Businesses:
Crowdfunding in most cases and especially with the likes of CrowdCube and Seedrs will be a free to apply for and set up process. Though being a great incentive to investigate crowdfunding, this is only the very tip of the iceberg and overall you will be spending out a lot of money in order to get your business pitch ready to launch.
Going through my latest venture and pitch on Crowdcube with Glass of Bubbly, the following you should consider:
- Are you ready to seek investment? Just because it seems that everyone else is doing it it doesn’t mean you should be also. Is your business at the appropriate stage to be seeking investment and can you prove this by putting together a business plan that outlines your spending proposal if you get investment? It may look a fairy tale journey for those companies that get crowdfunding success, but for everyone you see you should count at least 1,000 who never made it.
- Preparation. If you believe you are fit for crowdfunding then do not expect it to happen tomorrow. As an example, my latest venture on to Crowdcube took 3 months work! Make sure you have set time aside to prepare your pitch, get the best team together, pre-warn your likely investors that you are preparing your business plan for crowdfunding, apply for SEIS / EIS etc.
- Business Plan. Just like a kick starter programme will require of your business to create meaningful rewards, your business plan needs to be immaculately tempting and put together from the showcasing team you have / to your strategy. You should also invest in putting together a professional business plan from someone with sound experience in this field along with a professional designer to put it all together. Weakness at this level will showcase itself to every potential investor. A typical 40-50 business plan will cost you anything from £500 – £10,000 to put together.
- Video. Many will suggest that you have a video to backup your pitch, this can be anything from a mini movie of the business in action to a host of reviews from satisfied investors.
- Submitting pitch to Crowdfunding platform. Each platform will have a different set of rules, some easier to pitch to and others a lot more stricter. I have used a couple of different platforms and the questions they ask once you have submitted your pitch will be in finer details to more or less prove all your quotes / facts that you share with them – Be prepared that this process could take several weeks to complete as it is in the interest of the crowdfunding platform to only make live those companies which are likely to gain funding!
- Getting investors! Depending on how big your network is and where it sits, ie online / face to face / email lists etc then you need to be prepared to work like the clappers in order to get interest to and investment made on your crowdfunding page. Here you will have to be clever and disciplined, not be shy to ask and pester though balance things so not to offend or annoy. Being clever is important and using well your networks will help you to gather investors. In most cases, ie Crowdcube, you will go live on their platform initially privately until you raise a minimum of 20% of your total required money, then you can go live and get exposure to their community and the public.
- Well done – You got the investment! At this stage you have reached your target amount or ideally over funded, this is when the truth comes in to play and the quality of your investors who still have the option to withdraw – Each platform will work differently, but you may be on tender hooks until all funds have been received (usually on a third party money holding website such as Stripe). Legalities will come in to play then so it is advisable you have legal help to make sure everything runs smoothly from your business side as you will now be holding a group of new investors whose main interest is in getting a return on their investment!
Investors:
At anyone time there will be hundreds of businesses across the world looking for investment so your choice is wide and very varied. Many investors will usually stick to a sector or theme, ie food/drink or #Proptech. Many crowdfunding websites make it easy to search through and be tempted by start ups / companies looking to expand and will in most cases be fully legal and abiding by many financial regulations so that you know that what you are investing in is exactly what has been advertised. You are generally looked after and though your money is at risk, you are fully aware of those risks.
Some people / businesses will be investing just £10’s of £100’s and some will be £100,000’s. There is usually no minimum amount, within reason, that you have to invest in crowdfunding companies which makes it great fun for investors who are looking to own a wide portfolio of companies – Yes you will own a % of the business, though check the small print to see exactly what you own, and you will be classed as a share holder.
Some basic investor tips:
- Seek investments that are on a roll. Many companies will launch with already a big % raised, they obviously have momentum and likely already be on the radar of other investors so are ideal for investment.
- Do not be tempted to scan read on crowdfunding pages. Make sure you read pitches in full, watch the whole video and read through as best as you can any attached business plans.
- Think outside the box. Not only check the company’s pitching page, check them out online also ie social media accounts, Google their name, Companies House etc.
- Ask questions. Most crowdfunding platforms will enable you to ask questions or request a talk with the founder(s) – If you are interested in investing then take advantage of this!
- Be prepared. Most businesses fail so do not expect any different from crowdfunding pitches. This is the negative aspect, you will also see many that will succeed, give their investors a great return on their initial investment and great pleasure in seeing their business (they are a % shareholder no matter how small) grow and prosper.