Crowdfunding: How to side-step the banks

As we celebrate Global Entrepreneurship Week, the Federation of Small Businesses (FSB) and the UK Crowdfunding Association (UKCFA) have joined forces to give SMEs advice on accessing finance through crowdfunding.

According to recent FSB research, only 37 per cent of SMEs are aware of alternative finance providers, such as peer-to-peer lenders or crowdfunders.

But as the bank finance continues to be difficult to come by, alternative forms of finance can be a lifesaver for some businesses. For those not in the know, crowdfunding is a way of raising funds from investments from many people online, through a dedicated platform.

NESTA estimates that in 2011, crowdfunders raised $1.5bn, financing over a million projects. Since then, the trend has continued to grow.

“Most people’s first thought about crowdfunding is pitching on a well-known TV show, where if they like your idea, they’ll give you some money in return for equity,” says FSB national chairman John Allan. 

“While those people get to pitch in person and answer any questions, crowdfunding means pitching online, so getting it right is more important than ever if you’re going to succeed in getting finance.”

Here are the FSB’s top tips for getting your business crowdfunded:

  1. Proper preparation prevents poor performance: Just with trying to get a bank loan, having a clear business plan will demonstrate the business’s potential to the crowd. It will help give persuasive answers to the crowd and show them you’ve done your homework and researched the market and competitors. 
  2. Make your pitch compelling: Keep the pitch simple and avoid using jargon. This will help potential investors understand who and what they are backing. Consider using video rather than just a written pitch. 
  3. Market potential, the entrepreneurs and the idea: Investors will want to see you have a good idea that will give them a good return, but also that you have a team that will deliver the end product. 
  4. Promote you and your venture today: Begin warming up the crowd with the idea so they are eager to invest when the pitch goes live.
  5. Be realistic: Don’t be overly ambitious with the funding target and don’t over value the business as this can put the crowd off. Set realistic targets which you can back up when the crowd ask questions.

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