The crowdfunding industry is on fire and in many ways the economic crisis has contributed to its success. Alternative finance solutions from innovative companies such as Crowdcube (for equity), Funding Circle (for debt crowdfunding) and Market Invoice (for invoice discounting) are like phoenixes rising out of the ashes of a downtrodden economy?, states Crowdcube co-founder Luke Lang. This has sparked plenty of press attention that has certainly helped raise awareness. Vitally, it has generated a positive reception from investment-starved entrepreneurs and business owners, and showcased a real appetite for British people to invest in home-grown start-up, early stage and growth companies.
Indeed, when it comes to crowdfunding, growth seems to be the biggest trend. Lang explains that ‘so far this year – until 2nd October – we have successfully raised ?9m for nearly 40 businesses. That’s compared to £2.8m for the whole of 2012, which is an impressive 320 per cent increase and we re only three quarters of the way through the year. August and September alone saw over £2.6m successfully secured by UK businesses.
The Financial Conduct Authority (FCA) is conducting a public consultation this month as it sets to refine existing regulation, and this is a positive move for crowdfunding. Alongside the UKCFA (UK Crowdfunding Association), Crowdcube is working very closely with the FCA and HM Treasury, and we re having constructive conversations on creating a new framework which balances consumer protection with regulation that enables the crowdfunding industry to grow. This marks an exciting new phase development for equity crowdfunding as it becomes a more established way of raising finance.
Real Business took this opportunity to ask Lang which businesses see the most success through crowdfunding. Around 30 per cent of the businesses that reach their targets are start-ups, compared to 50 per cent early stage and 20 per cent that are in the growth stage of development. This, to some extent, dispels the myth that crowdfunding is only for start-ups and I think that it reflects investors” appetite for risk. They want to back new, up and coming businesses, but if this high level of risk can be balanced with some early traction and signs of progress then it becomes a more attractive investment proposition.
Online, digital and technology companies that are naturally innovative and scalable have attracted plenty of investment as one might expect. We ve also funded manufacturing, media, retail, and financial services companies. However, one trend that has taken us by surprise a little is that the British public has a taste for investing in food and drink companies. This has proved to be a popular category for investment on Crowdcube, with over £4.5m raised since its launch in 2011; that’s around a third of all investment raised through the site.
Companies of all sectors who embrace equity crowdfunding as a form of finance, battle it out online to have their latest products noticed by an ‘armchair dragon’. But how do you ensure that you reach your target” “Your fundraising doesn’t start on the day that your pitch goes live on an equity crowdfunding website, it should start well before this. If you can get word out on social media that you’re planning to raise finance and warm people up prior to the live date, it will ensure that your pitch gets off to a flying start. You also need to create a positive impression so a professional written and presented pitch with a compelling video is vital.
Evidence shows that a good video will increase the chances of crowdfunding success. A video pitch is a powerful tool for you to communicate your investment potential in a succinct and compelling manner. A well-executed video will help bring your business to life, demonstrating your passion and knowledge for the business. Remember that people invest in people, so this is an opportunity to shine. If you’re not comfortable in front of a camera, then an animation can be a very effective way to tell your story.”
Equity funding via sites such as crowdfunding is a huge trend. But how to do it well” Click here for Luke Lang’s article on how to triumph at crowdfunding