It seems as
though new avenues for funding as becoming available to new and established
businesses throughout the UK fairly consistently. However, one of the most
notable over the last decade has been the introduction of crowdfunding.
Businesses in nearly any industry and of any size may be able to utilise
crowdfunding to help push the needle on fundraising goals, but the innovative
process of connecting investors and companies is not right for every business.
For those thinking about going down the path of crowdfunding, it is essential
to understand what the process entails, what the alternatives are, and how to
generate success in the realm of business financing for the both the immediate
In 2011, the
term crowdfunding was gaining traction as a way for businesses to access
millions of potential investors in a single location. At its core, crowdfunding
marries willing investors to needing businesses, for the purpose of making
investments through an exchange platform. Sites like Seedrs, Crowdcube, and
Syndicate Room have grown into business financing machines as they make this
connection to investors easy, fast, and most importantly, transparent.
When a business
launches a crowdfunding campaign, there are typically four
distinct routes they can take to encourage or promote investment from the
public at large. Debt crowdfunding, also known as peer-to-peer lending, is a
popular choice for both businesses and investors. Through this category of
financing, investors lend funds to a company based on a specific project or
product, and in return, they receive interest on their contribution over time.
In addition to debt crowdfunding, equity crowdfunding, regulated by the FCA, is
a feasible solution for some companies.
crowdfunding also connects investors to companies in need of a capital
infusion, but investors instead receive a fraction of ownership or equity in
the business in exchange for their contribution. For businesses with a
charitable or social focus, donation-based crowdfunding is an option. Companies
with a particular perk or reward to provide investors may follow the path of
rewards crowdfunding as an alternative.
crowdfunding may work for many different businesses, some suggest seeking out
alternatives first. A finance specialist from Money Pug, a site used to compare
the best short-term
loans, recommends reviewing options for traditional financing before diving
into crowdfunding as the end-all for capital fundraising. This is because
traditional financing, such as invoice factoring, loans, and lines of credit
offer more predictable results and manageable repayment over time. Crowdfunding
may not offer the level of stability some businesses want or need in their
In addition to
loans and other financing solutions, companies with high-growth potential may
seek out funding through non-crowdfunding investors. Both venture
capitalist groups and angel investors can offer far more expertise in
growing a successful business alongside much large funding than crowdfunding
campaigns. Although each may require significant sacrifice from the business by
way of equity ownership, these additional resources and guidance can be
invaluable to growth-focused businesses.
How to Be Successful with Financing Efforts
Whether a business determines that
crowdfunding or more traditional financing mechanisms work best, companies must
take the time to prepare before seeking out funding. On the crowdfunding side
of the line, businesses should have a well-thought-out business plan,
projections of finances before and after the fundraising, and potential use of
the capital they raise through crowdfunding efforts. It is also essential to
select the right platform
for crowdfunding, as some are more suited to equity financing than rewards
or debt crowdfunding initiatives.
Businesses seeking out alternative
financing sources need to prepare for the application process, pulling together
up-to-date company financial documentation as well as a written plan for the
use of the funding. Lenders want to know that a company has the means to repay
the financing over time, and investors outside of crowdfunding platforms need
to feel comfortable they will receive their contributions back with a
Companies throughout the UK first need to
understand which financing path is the best fit for their circumstances, and
then follow through with a well-developed plan to get the funding they need
from individual investors or traditional sources.