Crowdfunding: What it’s really all about

New, disruptive, fascinating finance model crowdfunding will be discussed by: Stian Westlake, Nesta; Jon Bradford, Springboard; Sebastian Lewis, SoleTraderWebsites.com; Darren Westlake, Crowdcube.

Crowdfunding has the potential to become a valuable source of finance for entrepreneurs and growing businesses. There’s never been a more dynamic time for finance, in a time when cynicism for the commercial banks is growing, digital innovation is high, and SMEs are more important to the economy than ever. Yet, it stays difficult for new models, such as crowdfunding, to break through.

Where will crowdfunding platforms be in five years? Is the model at all set to make a significant impact on SME financing? What is its capacity? Who can benefit from it? And what is the right way to approach crowdfunding?

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Stian Weslake asks the audience for questions we cannot leave the room without answering. Replies from the floor: when should you crowdfund? Why is crowdfunding not bigger already? How do you interact with the crowd?

Darren Westlake says his experience as an entrepreneur was that coming up with an idea is easy, but raising the money and turning the idea into a business is a real struggle. “I thought being an entrepreneur I should find my own way of raising money.

“Becoming an angel is difficult, but if we lower the barrier to becoming an angel we can create an army of people ready to fund. That’s where the idea for Crowdcube came from. We launched it in 2011, and the aim was to try and give entrepreneurs an alternative for raising money; one where your’e empowered to keep control yourself.”

Sebastian Lewis says his business is a “bedroom business”; he was introduced to Darren Westlake through a friend and raised £100,000 in 12 days. “It was a great experience for me, and we’re getting close to 1,000 websites built for sole traders around the UK.” To answer the question of whether it’s difficult to deal with a great number if investors: “Those £100,000 came from 26 people. I’m in contact with about six people, with the other 20 I hardly ever deal with.”

Jon Bradford: “I kind of love crowdfunding, but on the other hand I have reservations around it. I run an accelerator programme, where typically we have ten teams, and at the end of the process we have a demo day. About 70 per cent of my teams get funded. In the process of getting to those ten I read a lot of applications, and in them there’s a lot of teams who should never, ever get on the programme, or indeed be funded.

“A significant proportion of startups are bound to fail. We have to recognise that a proportion should get funded, and a proportion shouldn’t.”

A question from the floor: What to look for in a crowdfunding platform?

Darren Westlake advises to look for the percentage of businesses that get funded; and to look at their track records. Sebastian Lewis would ask, “what type of investors are on the platform?” What’s their track record? “Having somebody involved in your business who could be your mentor, is probably worth more than the money.”

Another question from the floor: “Why isn’t crowdfunding bigger?” People aren’t aware of it, says Darren Westlake. “I do a lot to spread the word, so that every entrepreneur looking to raise some money knows that there is also crowdfunding as a way to raise.”

Sebastian says value in your business is the hardest thing. “I think I just got as much advice as possible from Darren, around the potential, cash forecast – I engaged on the Crowdcube forum, and people said ‘I don’t think it’s worth that, I think it’s worth that, etc.’.”

Of the 42 companies Crowdcube has funded, none have gone bust. It’s part of the crowdfunding due diligence process that only the best get through.

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