Crowdfunding is changing the way businesses raise money, through providing entrepreneurs an alternative source of finance for their businesses by bringing together a large number of people to financially back a particular business via an online platform.
Crowdfunding can offer multiple benefits for companies other than the pure monetary gain. Having access to a large, engaged crowd is a unique way raising awareness and interest for the company, whilst also being a helpful tool to measure the demand for a product or service.
There are many types of crowdfunding models, including reward-based, donation-based, micro-lending, peer-to-peer, peer-to-business, and equity.
A wide variety of businesses across various sectors and stages can raise through crowdfunding. Rewards-based crowdfunding will most frequently list products, services, projects or simply an idea, allowing the backer to pledge an amount of money for a reward, with structures tiered to reward the largest backers to receive the highest value or most unique reward.
sEquity crowdfunding is now firmly established as an accessible and efficient way for businesses to raise growth capital, continuing to outperform government and angel networks for deals funded and accounting for 24% of all equity deals in 2017. Equity crowdfunding as an industry, over its seven-year lifetime, has raised about £600 million in the UK.
Equity crowdfunding facilitates investment into early stage and growth companies in return for a pro-rata equity stake in the business. The type of businesses available for investment through equity crowdfunding is increasingly diverse giving investors the opportunity to hand-pick the businesses they want to back.
With equity crowdfunding, a business generally has some traction and is looking to raise anything from £50,000 to around £5m.
Primarily, investments are made with the end goal of making a return within, on average, a 5-10 year timescale, via a liquidity event such as a trade sale, in some cases a share buyback, in rare cases an IPO. Government tax incentives such as the Seed Enterprise Investment Scheme and Enterprise Investment Scheme are de-risking early stage business investment through offering eligible investors either a 30% or 50% tax relief on their investment if it qualifies.
Please contact us in the first instance so that one of our advisers can arrange a call to find out more about you and your business growth plans. The sort of things we will discuss are:
The team at Startup Direct were excellent in guiding me with my Crowdfunding campaign, I couldn't have done it without them.