Equity Crowdfunding Platforms in Europe

Crowdfunding in Europe has already achieved a significant level of growth, adoption and maturity. Various forms of crowdfunding now offer a wide variety of opportunities for Europeans to pursue a range of financial and community-minded/philanthropic aims. Here is a review of equity crowdfunding platforms in Europe, including some niche ones that show how this alternative finance sector is developing in specialist ways.

What is equity crowdfunding?

This form of crowdfunding enables founders of privately-owned businesses to raise funding through selling equity in their company. It is particularly useful for businesses that are at a pre-trading stage with no income because they are unable to qualify for loans, and for businesses seeking modest investment levels that are often too low for venture capitalists to be interested. One of equity crowdfunding’s great benefits to the companies raising funds is that if a business fails the owners do not have to repay equity investments, though it comes with high risks for investors: only one in ten new businesses last ten years or more. Yet successful ones can provide investors with exceptionally high levels of return.

The Americans have arrived in Europe

In the UK the equity crowdfunding sector is dominated by Crowdcube and Republic Europe (formerly Seedrs), which between them have more than an 80% share of the UK equity crowdfunding market. Republic Europe is a recent rebranding of the Seedrs platform since being acquired by the US platform Republic, and exemplifies US expansion in to the European market. Both the UK platforms have European offices that are authorised under European Crowdfunding Service Provider Regulations (ECSPR) to run cross-border fundraising projects throughout the full European Union.

Since February 2023, another US equity crowdfunding platform, Wefunder, operates a pan-European platform which is based in The Netherlands. As in the United States, Wefunder EU enables retail investors to invest in privately-owned businesses alongside angel investors and venture capital funds.

Opportunities to crowdfund across almost the whole continent in single projects, and the arrival of US players, has put pressure on the smaller platforms and the industry is entering a period of consolidation through mergers and acquisitions. The European Crowdfunding Market Report 2023, released in January 2024, informed us that 42% of equity platforms expected to either merge with another platform or be acquired by another platform in the near future.

Impact investing

At the same time, more platforms are trying to carve out a unique marketplace niche. ECSPR provides tremendous opportunities for platforms that were previously restricted to operating within national boundaries to flourish if they can add the right types of investor to their network throughout the whole European Union plus the EEA (European Economic Area).

Platforms that have focussed on particular industry sectors include the French platform We Take Part, which is dedicated to supporting cleantech and climatetech startups. It bridges the gap between entrepreneurs and investors through highlighting innovations that contribute to a sustainable and resilient future. Similarly, Invesdor Group, originally from Finland and now operating across Scandinavia, the UK, and German speaking Austria and Switzerland as well as Germany itself, has positioned itself as an impact investing platform. It offers equity investments and loan opportunities through bonds. Italy’s Ecomill is another equity crowdfunding platform dedicated to energy transition and sustainability.

One key aspect of such impact investments is that backers are seldomly concerned only with a financial return on their investment. They also gain a personal reward from knowing their investment decisions are making a contribution to social and environmental benefits, on whatever scale they may be.

Wider investment opportunities

Some platforms have moved away from a sole focus on crowdfunding as a way for privately-owned business to raise investment budgets. In the UK, both Crowdcube and Republic Europe have developed secondary markets where buyers and sellers can trade shares in private companies that they did not originally acquire through either of the platforms.

With more than 80,000 investors and total investments of over €50m, the German equity-based crowdfunding platform Companisto has several renowned business angels, corporate finance specialists, and venture capital companies in its network.

Sowefund, in France, works with VCs to provide startups with funding from a far smaller “crowd” of more institutional investors. In the UK the SeedLegals platform operates in a similar fashion with a network of angel investors, family funds and VCs. The Envestors platform based in the UK has a network of only high net worth personal investors who sign up to invest significant amounts each year.

Mamacrowd is a leading equity platform in Italy.

In the Republic of Ireland, equity crowdfunding is dominated by the Spark Crowdfunding platform, which began in 2018. However, since May 2023 the Irish-based venture private equity group VentureWave has owned a majority stake in the Estonian platform Funderbeam, which has moved more towards the institutional VC, family funds and angel investor sector.

In Belgium, on the other hand, the Spreds platform (formerly MyMicroInvest), continues to focus on equity and loan crowdfunding for early stage businesses planning to raise between €50,000 and €1,000,000. The platform fully believes in the multi-faceted power of the crowd to help validate a business concept and demonstrate consumer interest, while experienced investors help to examine the valuation of a company and the potential returns on investment.

Investing outside Europe

There are platforms that provide European-based investors with cross-border opportunities to diversify their investment portfolios through acquiring equity in startups, or lending to micro-businesses, in developing economies.

Crowdinvest in the UK is a good example: it features equity investment opportunities in tech startups in developing economies, including India. Built on Web3, tokenised cross-border transactions are made using blockchain technology.

LendaHand in The Netherlands raises funds across Europe to facilitate loans to small and micro-businesses in developing economies.

Platform regulation

Equity crowdfunding platforms have to meet strict legal requirements and complete a thorough Due Diligence process for each project they host. They are regulated by financial authorities, such as the Financial Conduct Authority in the UK, its equivalent in each other country in Europe, and the European Securities and Markets Authority (ESMA) for platforms trading under ECSP Regulations across the whole European Union and the EAA.

Other equity crowdfunding platforms in Europe can be found among the members of the UK Crowdfunding Association or at CrowdSpace, the German Bundesverband Crowdfunding, the European Crowdfunding Network, and the Global Equity Crowdfunding Alliance (GECA).

Crowd ownership of high value assets

There are several online platforms that allow non-high net worth investors to purchase shares or fractional ownership in high-value assets like luxury watches, art, cars, wine, and whisky. These platforms make it possible for everyday investors to diversify their investment portfolios and participate in the ownership of assets that would otherwise be beyond their reach, and for which they may feel a personal passion. The assets often become the property of a ring-fenced individual company, owned by crowds who acquire equity in the various companies.

Like any investment, there’s a risk of loss, especially since these assets can be more volatile or influenced by market trends. Many of these assets also require a long-term holding period to realize their potential appreciation. During such an extended time, these investments are often less liquid than traditional stocks or bonds, although some platforms do offer a secondary market for trading. There can also be costs for safeguarding these assets that would not be applicable to investing in company equity. Blockchain and NFT technology are making an impact in this sector.

A leading source of data on fractional ownership investment performance is the Knight Frank Luxury Investment Index (KFLII), which tracks the performance of 10 popular “investments of passion.”

Knight Frank’s Luxury Investment Index Q4 2023

Asset class12-month price change (%)10-year price change (%)
Art11%105%
Jewellery8%37%
Watches5%138%
Coins4%56%
Coloured diamonds2%8%
Wine1%146%
Furniture-2%40%
Handbags-4%67%
Cars-6%82%
Whisky-9%280%

Here are some relevant platforms. I have chosen a cross-section to show the range of what is available.

Konvi

Konvi is a pan-European crowdfunding platform, based in Dublin, Ireland, for people to invest through shared ownership of luxury items like watches, art and fine wines. A holding company is created for every asset that is going to be funded. This holding company and its purpose is to own, manage, and sell that one particular asset. When a person invests in an asset, they become a shareholder in this holding company. Konvi was founded in 2020,

ARTSPLIT

ARTSPLIT allows retail investors to buy fractional shares in high-value artworks. The platform, which is based in Paris, France, selects and acquires pieces from established and emerging artists, offering them as “Splits” to investors who can purchase shares. Investors can choose from a curated collection of artworks, which are professionally valued, insured, and stored. This allows retail investors to own a portion of blue-chip and contemporary art without the need to invest large sums of money.

The minimum investment can vary but typically starts from as low as €50 per share, making it accessible for a wide range of investors. ARTSPLIT offers a secondary market where investors can trade their shares. This means investors can buy or sell their shares in the artworks with other investors on the platform, providing flexibility and potential liquidity.

Wine Owners

This platform is based in London, and has a focus on fine wine and spirits. It operates as both an investment and a wine portfolio management platform. Investors can buy, sell, and manage wine collections with the platform acting as a marketplace. The minimum investment varies depending on the specific wine but often starts around a few hundred pounds. It is ideal for wine enthusiasts and investors looking to directly own bottles of fine wine or build a diversified portfolio.

CaskX

This platform specialises in whisky casks from leading distilleries in Scotland and the US. Investors can purchase entire casks or fractions of whisky casks, with the option to let them age or sell when the value appreciates. Its head office is in California, though it also has an office in Scotland.

WiV Technology

WiV Technology is based in Oslo, Norway, and offers fractional ownership of fine wine and rare spirits. It uses blockchain technology to tokenize fine wine assets, enabling secure trading. Investors can purchase shares in individual bottles or cases of wine, and the platform offers full traceability and provenance verification. The minimum investment starts at around €50, and there is a secondary market where investors can trade wine tokens, providing liquidity. It is ideal for investors interested in combining blockchain technology with fine wine investment.

A look to the future of crowdfunding in Europe

I will leave the final words to the European Crowdfunding Network. It seeks to align crowdfunding with the new European Commission’s vision for sustainable growth

“As Europe advances its sustainability and digital innovation goals, crowdfunding can play a pivotal role. Platforms are already facilitating direct investments in renewable energy projects, circular economy initiatives, and technological start-ups, directly supporting the EU’s green and digital transitions.

Crowdfunding is also an important tool for fostering democratic engagement in the economy. By allowing European citizens to invest directly in securities or loans for businesses, crowdfunding offers a transparent and participatory model for financial inclusion. Though small in scale compared to institutional mechanisms, crowdfunding enables bottom-up economic participation that aligns with the EU’s ambition to strengthen social cohesion and economic resilience.”

For 10 years I have been an independent crowdfunding advisor, with no attachments to any particular platforms. If you have crowdfunding ideas or plans you would like to discuss with someone who can give objective views and support, please get in touch through [email protected].

Crowdfunding Tips and Insights are Often Freely Shared

Crowdfunding tips and insights shared by four crowdfunding experts

It is a very helpful that many people who have been successful at using crowdfunding are prepared to share their tips and insights. This article includes some crowdfunding tips offered by four experienced users.

Due Diligence is often problematic

John Auckland of Tribe First, which provides crowdfunding “boot camps,” shared in a radio show that information given in team biographies often delays the crowdfunding due diligence process more than any other section of the pitch. Every claim has to be evidenced, including the management team’s career history with payslips and tax returns. It’s a challenge and failing due diligence checks can significantly delay a campaign. Rather than deliberately trying to mislead anyone, failure is often because people don’t have the evidence to hand for the claims being made.

“It might sound impressive that you made 10,000 sales last month, or achieved a 300% sales growth in just one year, but can you demonstrate it? If you’re making claims like this, you’ll have to offer the platform a complete list of your sales and show your working.” Source: John Auckland on Kent Business Radio.

This is corroborated by Chris Forbes, co-founder of The Cheeky Panda, a brand of tissues and related products made from sustainable bamboo, not paper (which is essentially from trees). “Entrepreneurs should keep in mind that due diligence is probably the most arduous part of the [crowdfunding] process. You’ll need appropriate evidence for every claim you intend to make in the pitch.” Source: Republic Europe (formerly Seedrs) case study.

Good crowdfunding is good marketing

Chris Forbes additionally shared that each of The Cheeky Panda’s equity crowdfunding rounds was also valuable for brand awareness and PR that lasted long after the rounds closed. 

The business now has over 1,800 shareholders who are also avid supporters and who continue to advocate for, and positively impact the brand.

Every one of the shareholders can be extremely helpful, which is why he ensures that every effort is made to be as communicative and transparent as possible, even after the round has closed, to make sure that no inquiries go unanswered and to take the insights of shareholders on board.

Crowdfunding’s advantages over VC funding

Laurence Kemball-Cook is CEO of Pavegen, an innovative B2B company that generates sustainable electricity from people’s footsteps. In an explanation of why he chose to use crowdfunding to raise early-stage investment, he said the terms from VCs are always restrictive. “They want board seats, control, liquidation preferences, restrictive terms on the founders – all things which don’t favour the company raising money,” he explained in an interview.

Much of this is echoed by Chris Forbes of The Cheeky Panda. “For the last round [of equity crowdfunding] we spoke to a lot of Private Equity houses but they tend to be slower-moving, and we wanted to expedite the process. We didn’t want to give up large percentages of equity, end up with a mix of equity and debt, or undergo expensive board hires which would compromise our profitability. We also didn’t want to be instructed how to spend the funds by external parties. We prefer to do things our way, and the crowd supports that.”

Have a communications strategy

Patrick Dumas is co-founder of Square Mile Farms, a vertical farming business created to bring farming to urban spaces, boosting wellbeing and sustainability. He found that crowdfunding is a very busy, stressful and distracting process. A key learning for their second round of equity crowdfunding, and one of his crowdfunding tips to make it less stressful and more manageable, is to have a clear communication strategy to follow. This included LinkedIn and email outreach from the pre-registration stage onwards. They were more organised and proactive with their communications the second time, with a schedule list to work from.

Like The Cheeky Panda, Square Mile Farms has over 1,000 shareholders from crowdfunding, and the feedback they’ve had from them is overwhelmingly positive, constructive and straightforward, Patrick said in a case study. They issue quarterly updates, and occasionally people respond to them with a lead or recommendation, which they find really helpful.

After immersing myself in crowdfunding for almost ten years I have a few crowdfunding tips and insights of my own. Please get in touch via [email protected] if you have crowdfunding ideas or plans you’d like to discuss.

Crowdfunding’s popular for food and drink brands and restaurants

Food and drink crowdfunding examples October 2023

Of the crowdfunding campaigns and related news I noticed in October there was a high proportion that were food related. This includes startup food brands and restaurants. Entrepreneurs and startup founders in these sectors have identified that as well as raising funds to invest in the business, well planned and executed crowdfunding also represents good marketing.

Crowdfunding for food and drinks brands can stimulate trial, prompt consumers to ask for them in their local outlets, and increase brand loyalty among existing users who can become investors. New shareholders can also become valuable customers in a virtuous circle that gives crowdfunding backers a strong motivation to become brand advocates and ambassadors.

Similarly, crowdfunding used by restaurants can bring forward consumer demand and have them pay now for meals they will enjoy at a later date. From burger and coffee chains to Michelin-starred restaurants, it provides customers with a talking point to recommend a favourite place to go to friends and colleagues. Perks such as limited places for cookery lessons, or even meals prepared by chefs in crowdfunding backers’ own homes can deliver a wow-factor to make the backers feel special, and once again give them a talking point.

Crowdfunding backers also have the chance to get to know about the people behind startup food and drink brands, and restaurants, and maybe identify with their broader aims from an increasingly ESG or community asset perspective.

Crowdfunding by Restaurants

Chefs Lewis Dwyer and Andy Aston opened their independent Michelin Star restaurant called Hiraeth in Cowbridge, Wales, last November after raising £30,000 of reward-based donations through crowdfunding. They now need new premises after the landlord unexpectedly decided to sell the property.

Chef Merlin Labron-Johnson had already beaten his £125,000 crowdfunding target with 10 days left to run. He was raising money to relocate his farm-to-table restaurant Osip 2.0 in Somerset. His crowdfunding went on to achieve £166,261 from 464 backers to help bring this project to life. As perks, he offered branded restaurant crockery, chocolate cookie tasting sessions, hampers of mixed goodies, lunch and dinner at the restaurant for groups up to eight people, and home cooked meal for fifteen, and tickets for an exclusive opening night party.

Equity crowdfunding by London-based Honest Burgers’ closed after raising almost £3m. The casual dining restaurant group soundly beat its £1m target, raising £2,905,631 from 3,456 investors. It will now open further restaurants and launch a new quick-service burger.

Founded in Barcelona in 2020, startup coffee chain GoodNews is soon launching a round of equity crowdfunding after three previous seed and Series A funding rounds, which have already raised €15m (£13m). Good crowdfunding can be good marketing and attract loyal customers.

Startup founders Florin Grama and Felix Ortona Coles met while working at St Barts restaurant in London’s Smithfield Market area. In October they began reward-based crowdfunding to raise £20,000 for the final pieces of equipment they needed to open their Tarn Bakery in Highgate. Perks include classes to make croissants, sourdough pastry and pasta. By October 29 they had reached £15,242 with eight days left to run.

Crowdfunding by food and drink startups

With the growing demand for minimally processed and natural plant-based food, Tempeh brand Better Nature has launched another round of equity crowdfunding as part of a £1 million-plus raise to drive retail growth for its meat alternative range across the UK and Europe.

Hertfordshire-based SRSLY Low Carb has signed an agreement with a food distributor that services leading supermarket chains in all 50 US states. To support global growth, SRSLY is embarking on a seven-figure equity investment round which includes a round of equity crowdfunding in November with a minimum target of £500,000.

Earlier this year, craft beer maker Gipsy Hill Brewing in southeast London launched the world’s first carbon-negative beers, achieved without relying on carbon offsets. A new crowdfunding campaign in November will help them accelerate their climate-positive agenda. The brewery ran its first equity investment round in 2022, in which 581 investors joined its community and invested £865,149, 130% above Gipsy Hill’s target.

A former City analyst founded the Cheesegeek food marketplace platform in 2017 to connect artisan cheesemakers with consumers. Edward Hancock now hopes his equity crowdfunding campaign in November 2023 will raise £150,000 so he can start a forum for cheese fans, with investors invited to develop a new variety.

French plant-based food brand La Vie closed its equity crowdfunding in October with 2,691 backers investing €2.1 million. La Vie, whose UK headquarters are in London, used the Crowdcube platform which through its Barcelona office is authorised to run crowdfunding campaigns throughout the EU as well as in the UK. La Vie’s multi-award-winning plant-based alternative to bacon is available in 13 European countries. The brand claims to have so far saved over 90,000 pigs and 2 million tonnes of CO2.

Considering crowdfunding?

If you are thinking about running crowdfunding, and in any sector, not just crowdfunding for food brands, the most common mistake is to not allow enough time for preparatory work. This can include building larger networks of followers, and for those considering equity crowdfunding the platforms will require you to have lead investors prepared to guarantee a minimum of 30% of your target raise.

I am an independent crowdfunding strategist and adviser, unattached to any particular crowdfunding platforms. Please get in touch for objective advice and insights into your plans, and maybe hands-on support if you decide you want it. Send an email to [email protected] to get started.

What are the main criteria for choosing which crowdfunding platform to use?

Crowdfunding platforms available in the UK

There are different types of crowdfunding, and plenty of platforms to choose from for generating donations to a charity or a worthy cause; asking for help to complete new product development; personal fundraising, such as for medical costs or educational fees; accessing loans at lower-than-high-street interest rates; buying and selling shares in privately-owned businesses; and using a crowdfunding platform as a distribution channel to generate pre-paid product orders. The choice of a crowdfunding platform can significantly impact the success of a campaign, particularly for startups seeking business finance. So it’s important to carefully consider the following 15 criteria for choosing which crowdfunding platform to use.

  1. Type of Crowdfunding: There are different types of crowdfunding, including donation-based, reward-based, equity-based, and lending-based crowdfunding. Choose a platform that aligns with the type of crowdfunding you’re looking to use for your campaign.
  2. Fees and Costs: Crowdfunding platforms usually charge fees for hosting campaigns on their platform. These fees can vary significantly and may include platform fees, payment processing fees, and other charges. Evaluate the fee structure to understand how much of your funds will be used to cover these costs.
  3. Target Audience and Niche: Some platforms cater to specific niches or industries. Choose a platform that attracts backers who are interested in your project’s field or sector.
  4. Geographic Reach: Consider the platform’s global reach and the countries where it operates. Some platforms are more popular in certain regions, so choose one that aligns with your key target audience’s location.
  5. Platform Reputation and Trustworthiness: Research the platform’s reputation, history, and success stories. Look for reviews from other campaigners to gauge the platform’s reliability and trustworthiness. Platforms that are members of the UK Crowdfunding Association are obliged to follow the UKCFA Code of Conduct.
  6. User-Friendly Interface: A user-friendly platform with an intuitive interface can make it easier for both campaigners and backers to navigate and participate.
  7. Campaign Support: Check if the platform provides resources, guides, and customer support to help you create and manage your campaign effectively.
  8. Visibility and Exposure: Some platforms have a larger user base and better marketing reach, which can increase the visibility of your campaign. Consider the platform’s ability to help your campaign reach a wider audience.
  9. Fund Disbursement: Understand the platform’s policies regarding how and when funds will be disbursed to you. Some platforms release funds only after the campaign reaches its funding goal, while others may allow earlier partial disbursements.
  10. Flexible Funding Options: Some platforms offer flexible funding, where campaigns receive the funds even if they don’t meet their target goal. This is known as Keep What You Raise. Others use an All-or-Nothing approach. Choose the one that aligns with your campaign strategy and your available budget to run your crowdfunding. You don’t want to incur costs and then realise you aren’t going to have any money.
  11. Social Sharing and Integration: Look for platforms that have social sharing features and integrations with social media platforms. This can help your campaign gain traction through online sharing.
  12. Analytics and Reporting: Consider platforms that provide analytics and reporting tools to help you track the progress of your campaign and understand your backers’ behaviour.
  13. Legal and Compliance: Different crowdfunding models have legal and regulatory implications. Ensure the platform complies with relevant laws and regulations for your type of campaign.
  14. Intellectual Property Protection: If your campaign involves a product or innovation, research how the platform handles intellectual property protection to safeguard your idea.
  15. Community and Engagement: Platforms with active communities and engaged backers can provide valuable feedback and support for your campaign.

Ultimately, choosing a crowdfunding platform should align with your campaign’s goals, target audience, and the type of crowdfunding you’re using. Carefully review your options and choose the platform that best suits your needs. If you want some help, I am an independent crowdfunding advisor with no ties to any particular platform. Send me an email to [email protected]. Or follow me on Twitter where I regularly post news about crowdfunding campaigns.

The main image shows some of the crowdfunding platforms available to use in the UK – apologies to the ones I have left out.

5 Reasons for Equity Crowdfunding Success

equity crowdfunding success for a doughnut company

Many startups using crowdfunding offer techie apps or fintech products and services, but it was a Midlands-based doughnut company that recently enjoyed phenomenal equity crowdfunding success.

The Project D doughnut company, set up in 2018 by three former schoolmates, launched an equity crowdfunding campaign in May 2023 to raise £400,000 and accelerate the company’s growth. It already had an annual turnover of £2.6m prior to the crowdfunding, and had set an aim to reach £12 million in three years. They were staggered to receive, in just a preliminary private investment round, pledges of £2 million. This was before it was even open to the general public. They used the Crowdcube platform, which is a major one for equity crowdfunding offers in the UK.

The three founders were left wondering how to respond: how much added equity would they open up to crowdfunding investors? Some people may think they should just take the full £2m on offer from investors in the private round, and then go ahead and generate even more from the public round. However, given the high demand for their equity, they could scale back now and possibly come back soon with another round at a higher share price.

Equity crowdfunding success like this is great to see, though it doesn’t happen very often to this degree. And it does also present some problems. I began to think about what the reasons or the circumstances were that caused this surge of popularity. Five factors came to mind.

1. Project D has a low-entry-cost product that significant numbers of customers have been able to try, and evidently decided they like the doughnuts and the way the company operates its D2C order-taking and delivery. They have a substantial community of over one million people to attract as investors. They had obviously done some good data capture work to be able to communicate the crowdfunding offer to them.

2. A lead investor had guaranteed £150,000 – 37.5% of the initial £400,000 target. That gives smaller investors confidence to go ahead.

3. The business had used social media very cleverly to raise brand awareness, with viral videos on its Tiktok account receiving 19 million views in a single two-month period.

4. Project D can claim corporate accounts with British Airways, Brewdog, Amazon and Rolls-Royce. It might have been no more than a delivery to a local office, but big brand names add cachet and boost investor confidence.

5. The company has also won multiple awards including being named the first-ever winner of the Online Bakery Business of the Year category at the 2022 Baking Industry Awards.

To investors, it must have looked like a tasty winner all the way! There are lessons here for all sorts of companies in many different sectors about customer data capture, effective marketing, the value of corporate accounts and the reputational benefits of entering and winning awards.

If you are considering running a business-related crowdfunding project, and want to discuss it with an independent crowdfunding adviser, then please get in touch by an email to [email protected]. To keep up with crowdfunding news, events and projects you can follow me on Twitter.

Equity Crowdfunding and Venture Capital Working Together

Equity Crowdfunding and Venture Capital Working Together
Not so long ago it was still quite common to come across articles that tried to pitch VC investors and equity crowdfunding supporters and platforms against each other, as if every startup business entrepreneur faced a binary choice of which investment route to pursue. There are growing signs that the complementry rather than competitive nature of these sources of startup and scaleup business funding are beginning to be appreciated.

Many startup founders seek investment budgets that are beyond the resources of friends and family backers, yet are too small for VCs to normally bother getting out of bed for. And if a business is in its earliest days without a trading history or future sales orders, there’s precious little hope of securing a business loan, whether from a traditional source like a bank or from a peer-to-peer lender such as Funding Circle. So there is a true gap in the business investment market that equity crowdfunding occupies, at the same time as providing better returns for small-scale investors than they can get from high street deposit accounts or investment schemes.

It remains fair to say that equity crowdfunding is not yet a fully developed entity due to the small number of exits that have allowed investors to reap their rewards: the UK Crowdfunding Association’s website has just one solitary case study (though there have been more). Other business finance commentators harp on about the startups that still fail, sometimes within months of raising seven-figure sums through crowdfunding, as if crowdfunding ought to provide some mystical defence shield against business failure.

Despite these shortcomings, the rude health of hundreds, even thousands of startups around the world that have traded equity for an investment from a crowd of backers supports enough confidence for the practice to continue to grow and spread.

It has now reached a point where venture capital firms are not only taking notice but some also want to be involved. In the UK, for example, the startup support division – called G – of the global accountancy firm Grant Thornton works with the equity crowdfunding platform Crowdcube.

It is a symbiotic relationship: Crowdcube can offer its clients a longer business development path than just realising their earliest investment rounds, and Grant Thornton gains an entry point to build relationships with promising entrepreneurs before they are big enough to usually be worth their attention. G also offers to make introductions to some of its network of investors who have indicated they are open to the idea of making early seed-stage investments. Here is an example of this co-operation in practice.

GunnaEquity Crowdfunding and Venture Capital Working Together is a range of uniquely-flavoured, craft-made soft drinks which aims to disrupt the established carbonated drinks marketplace in a similar way that craft beer has. It retails at a competitive price for a product made with better quality ingredients, and contains less than 5% sugar to be part of a healthy lifestyle. In 2018 it was available in over 3,500 UK stores, sales were up 300% on the previous year, and their highly experienced founders wanted to raise funds to accelerate the growth rate.

Initial discussions with Grant Thronton indicated that £500,000 would be appropriate to build distribution through recruiting additional sales people and investing in trade marketing. Although this amount is below Grant Thornton’s minimum threshold, their growth finance team remained involved to get Gunna investment-ready to run equity crowdfunding via Crowdcube to raise the money.

Support from some cornerstone investors who wanted to get involved at the ground level, introduced by Grant Thronton, strongly reassured a crowd of smaller retail investors. The equity crowdfunding project generated £819,150 from a total of 245 backers. As Gunna grows it’s likely there will be a need for further, larger rounds of investment which will meet Grant Thornton’s VC-backing criteria. Gunna’s hoped-for exit strategy is acquisition by an international drinks company.

A less formalised example is that of a business founded in 2013 that recycles surplus fruit and vegetables to make traditional recipe relishes and chutneys, Rubies in the Rubble. They were able to gain investment backing from Mustard Seed, a VC fund that takes a principal investor role in world-class early-stage businesses that generate compelling financial and societal returns.  However, beyond accepting £160,000 from Mustard Seed, the founder of Rubies in the Rubble, Jenny Costa, used it as cornerstone funding to launch an equity crowdfunding project on the Seedrs platform.

A rule of thumb has evolved based on empirical evidence that successful crowdfunding projects ought to start with very early pledges of at least 30% of their financial target. This is achieved through personal pre-selling by the project leader and their team to guarantee – as far as possible – that their project starts with a bang and not a whimper. This creates momentum as it gives vital confidence to what are usually smaller retail investors who require some reassuring encouragement to take the plunge.

Equity Crowdfunding and Venture Capital Working TogetherRubies in the Rubble set a target raise of £300,000, in which Mustard Seed’s investment easily covered the 30% requirement. By 3 June 2019 the project on Seedrs has easily surpassed the initial target and wss overfunding at over £535,000.  The funds are to support the launch later in the year of a mainstream ketchup product and a vegan plant-based mayonnaise. The business aim is to capture 3% of the UK ketchup and mayo market by 2023, whilst continuing the fight against food wastage. A trade sale is the most likely exit strategy.

Please get in touch for further insights and support on how you could use crowdfunding to raise money to startup or scaleup your business, plus reap the benefit of numerous other advantages. I’m an independent crowdfunding advisor, not tied or affiliated to any particular platforms: [email protected]

Crowdfunding does more than raise money

Crowdfunding does more than raise money

I was recently asked about crowdfunding by the founder of a startup business that makes a range of non-alcoholic wine.  There was nothing confidential in my reply, so I thought I’d share it with you.

You’re absolutely right that crowdfunding can be a more time consuming way to raise money compared to perhaps a VC investment or an angel investor. Yet there are other benefits that go way beyond the money it raises.

For example, VCs were queueing up to invest in Chapel Down (the celebrated English sparkling wine maker) when in 2014 they launched their equity crowdfunding campaign. Beyond raising £3.9m in three weeks, their CEO Frazer Thompson told me that crowdfunding had generated 1,500 brand advocates who would spread positive word-of-mouth, buy Chapel Down products at every gift-giving opportunity, and create sampling opportunities by stocking their wines (now beers as well since they built a brewery with some of the money they raised, and gin too) both at home and in their company drinks cabinets. Priceless!

Crowdfunding creates a virtuous circle whereby customers can become shareholders and shareholders become customers. I’m caught up in it myself as an investor in a craft brewery and a gin maker. If “my brands” are available,  why drink others? Shareholders catapult themselves right up the brand loyalty ladder.

Hop Stuff Brewery started five years ago when it raised £58,000 through offering 34% of equity. It’s now valued at over £25m, with products stocked in Wetherspoons (which encourages lower than regular cost product trial), Tesco and Majestic Wine; it has a growing chain of beer and pizza outlets; and international sales and franchise brewing agreements.  Hundreds of their 1,000+ investors from three rounds of crowdfunding on Crowdcube attended an “Investor Fiesta” event at their new brewery back in August.

A network of investors can be used for research purposes and to ask for ad hoc assistance such as help recruit staff,  recommend suppliers, volunteer their own services, and so on. At the Hop Stuff event I heard a fellow investor volunteer to use his contacts to help sort out supplies of CO2, which if you remember was in short supply in the summer.

Crowdfunding does more than raise moneyEven if it’s not a main aim of the crowdfunding, it could find you an angel investor. This happened to some people I know who started a business making tissues from bamboo. To begin with, all they wanted was an initial £10,000 of orders through rewards crowdfunding to provide validation they weren’t wasting their time. A backer was impressed with what he saw and stepped forward to invest, which allowed the founders to greatly speed up product development and company growth. So do eveything as professionally as possible.

They were a top-seller on Amazon very quickly. Within three years the company founders raised £500,000 in October 2018 for 10% equity on the Seedrs crowdfunding platform  – they had a business valued at £5m!

Their latest news is The Cheeky Panda tissues are now stocked in Tesco and Morrisons; in the summer they signed a £1m corporate investment deal that valued them at £20m; and right now they are running a second round of equity crowdfunding for existing investors in which they are offering 5% for £1m.

Good crowdfunding is also good marketing. I call it an ultimate direct marketing campaign. There’s a start date, an end date, lots to do, and if you fail to hit target you don’t raise any money. Naturally there are risks, though by breaking a crowdfunding campaign down in to component parts each potential risk can be addressed and minimised. I’ve created a Seven Stage Assessment to check if a business is ready to start crowdfunding, and identify areas that need to be addressed before going public.

My approach is more from a marketing angle, since that’s what I’ve always done. I am not a finance expert and not qualified to give financial advice. Though I can provide an experienced layman’s assessment on how appealing any offer may be to the public. I do have a post-grad diploma from the Institute of Direct and Digital Marketing and a Professional Diploma in Management from the Open University Business School.

One vital tip is that crowdfunding should not begin until you have done enough personal pre-selling for 30% of the financial target to fly in to your crowdfunding campaign within the very first few days. This applies whether you’re trying to generate product orders or offering equity. This gives immense confidence to other backers who don’t know and haven’t met you, and creates valuable momentum. So if you have a target of £200,000 your pre-selling should reach a guaranteed support level of £60,000 in the bag before you start crowdfunding in the public eye (ideally more to allow for dropouts).

Early success is newsworthy and hard-working PR will generate media coverage to add to your early momentum.  On the other hand, crowdfunding without pre-selling is like shovelling quicksand – hard work and you get nowhere.

How much it costs and how long it will take depend on:

  • how well your business rates against my Seven Stage Assessment
  • how much work has to be done to become investment-ready
  • of that, what can be done internally and how much has to be outsourced
  • including how enthusiastic and good you are at using social media – and “it’s ok, my kids use Facebook, they can help” isn’t good enough
  • success rate of using PR to secure media coverage
  • how long it takes to drum up support to reach the first 30% of your target.

If you have no social media networks to drive people to your crowdfunding project it may first require months of work to build some. Or months to accumulate impressive media coverage you’ll be able to refer to, or both, ideally.

Outsourcing support and input can even begin with the pitch document. A 30-chart deck may be very thorough but it’s too much for a potential equity investor to wade through with enthusiasm. Most look for the first reason they can give themselves as to why not to invest so they can move on to the next opportunity. Simply having to spend too long to get a feel of an opportunity is a good enough reason to discard it right away.

Don’t forget the taxman. Many retail investors prefer businesses to be registered with HMRC under EIS and SEIS agreements. These Enterprise Investment Schemes allow tax-paying investors to claim valuable rebates of up to 50% of the cost of their investment, and shelter capital gains from CGT. Under SEIS a company founder can invest up to £100,000 in their own business and claim a refund. Make sure you understand and take advantage of these benefits for yourself and your backers.

To close, what you see online when people and organisations run crowfdfunding campaigns is like the tip of an iceberg visible above the waterline.  Invisible under the water is a vast amount of planning and preparation, and a fair amount of stress. It’s not impossible to run a crowdfunding campaign alone if you’re tough and resiliant enough, though most people need some help and support, be it technical or emotional or anything else. This comes either from a team of willing supporters who between them provide all the necessary skills required to achieve your success, or you need a budget. Most times it’s a bit of both. If you want to talk about your ideas that could transform your life please get in touch, [email protected].

How Crowdfunding is Changing Business

How crowdfunding can turn a holiday idea in to business reality

For many startup entrepreneurs (and d-i-y investors who back them) the most significant form of modern day crowdsourcing is crowdfunding. Rather than trying to impress a single backer to support a business idea, perhaps through chasing a grant or bank loan, or by catching the attention of an elusive angel investor, crowdfunding has decentralized the process and enables business startups to ask crowds of people directly – some of whom they know and many they don’t – to each provide a relatively small level of support.  It also builds communities of followers and supporters, where customers become investors and investors become customers in a virtuous circle.

Favourable “light touch” treatment of equity crowdfunding (where investors pay for a slice of ownership of a business, and accept the risk that it may fail) by the financial regulators allowed the UK to emerge as the world’s market leader. Crowdcube was one of the first equity platforms to appear, in 2011, and it recently announced a total figure of more than £500 million invested so far in 700 funding rounds. The banking app Revolut and the Scottish brewery Brewdog, both currently worth over £1 billion, launched through Crowdcube.

Although some of the startups supported by crowds of sometimes relatively unsophisticated backers might be mocked by professional investors for some fanciful financial forecasts, many disruptive and challenger brands have emerged whose impact on established business sectors often far outweighs their market share or company valuations. Being new can mean a fresh approach unbound by a legacy of the past, even though a lack of a track record makes it hard to interest traditional investors at the beginning.

Here are examples in three business sectors where challenger brands used the power of crowds and are disrupting the status quo.

Banking
London-based Revolut, the UK’s fastest growing fintech company, ran a crowdfunding campaign as recently as 2016 to raise £1m and get started. Crowdfunding was also good marketing for them as it generated a core crowd of hundreds of investors who would become keen customers and brand ambassadors.

Crowdfunding is Changing Business

Revolut’s CEO and co-founder Nikolay Storonsky

The co-founders’ business idea came from their personal frustration with exchange rate markups, inexplicable foreign transaction fees and the overall hassle of managing a bank account abroad.

Today, Revolut provides over two million customers (two million customers acquired in two years!) with a debit card allowing the holders to spend money in 150 currencies with no fees. They estimate they have saved their customers over £560m in traditional banking fees, and in 2018 raised $250m through corporate investment which valued the business at $1.7bn (£1.2bn).

Brands like Revolut and fellow banking newcomer Monzo are definitely shaking up the traditional banks and changing customer expectations. The technology was there, but the existing high street banks still provided us all with slower, less sophisticated and more expensive services. With us all the way, are they?

Brewing
Behind Brewdog which is now a unicorn startup valued at over £1bn, there are many smaller craft brewers that continue to launch with modest funding and provide UK drinkers with a vast choice of beers and ales made with hands-on quality control and finer ingredients than high volume mass-market brands can access in sufficient volume.

Crowdfunding is Changing BusinessAn example is the fast growing Hop Stuff Brewery in south east London. City finance professional James Yeomans found he enjoyed home-brewing more than his time spent in the office and became determined to take it further. In 2013, without any commercial brewing experience – but he could talk “money” – he used equity crowdfunding through Crowdcube to raise £58,000 in exchange for 34% ownership of his startup craft beer brewery.

The business grew, and alongside attracting corporate investments it ran a second round of equity crowdfunding that closed in January 2017, and then a third smaller one in early 2018. Although corporate investors were by now queuing up for a slice of the business and crowdfunding was unnecessary for purely financial reasons, crowdfunding has provided Hop Stuff with a dedicated following of over a thousand supporters happy to perform unofficial Brand Ambassador roles. They influence people to sample the brewery’s products through positive word-of-mouth, and ask pubs and bars where they drink to stock them.

Hop Stuff is currently opening a number of its own “beer and pizza” bars under the Taproom brand, filling a global order book and signing overseas franchise brewing agreements. Compare this to the rest of the UK beer trade: the British Beer and Pub Association (BBPA) recently reported annual sales were 1.7% down, and in August 2018 the BBC reported UK pubs are closing at a rate of 18 a week. Hop Stuff Brewery is certainly bucking the trend, has just moved to larger brewing premises, and five years after launching with £58,000 raised through equity crowdfunding it is valued at over £25 million.

At an invite-only event for his crowdfunding investors in August 2018, founder James Yeomans announced that packaged Hop Stuff Brewery products will soon be on the shelves in London branches of Tesco, Oddbins and Majestic Wine.

Grocery items
Bamboo is a fast-growing sustainable product with four growth cycles a year. Tissues made from bamboo rather than paper are naturally stronger, softer and more hygienic. They can be made with a 65% smaller carbon footprint.

Crowdfunding is Changing BusinessWho created and introduced this breakthrough eco-friendly product to the UK? Was it corporate giants Kimberly-Clark or Procter & Gamble that own market-leading worldwide tissue brands? No, it was a pair of UK holidaymakers who returned home from China, researched possibilities and wrote a business plan to utilise abundant supplies of unwanted surplus bamboo they had seen being left to rot.

A modest reward crowdfunding project on the Crowdfunder UK platform with a target to generate £10,000 of orders gained the attention of a crowd of early adopters and, by chance, an angel investor. Within three years the founders of The Cheeky Panda tissue company ran an equity crowdfunding campaign with Seedrs that raised £500,000 and valued their business at £5m. The brand is a top seller on Amazon.

So even in the high-volume fmcg sector (fast moving consumer goods) dominated by massive brands that are supported with multi-million £ advertising budgets, crowdfunding – the crowdsourcing of both money and a community of supporters – enables entrepreneurs to introduce innovative products and disrupt existing markets.

Mayor of London Has £1m For Community Projects Using CrowdfundingIf you are considering crowdfunding as a means to launch a startup, or maybe to grow an existing business, I can provide you with independent crowdfunding advice and hands-on support. I have no ties to any particular crowdfunding platforms. Please email me, [email protected]. Let’s discuss your ideas and set about building them in to a plan of action.

Deliveroo’s attempted new pay deal a return to “bad old days”?

Deliveroo’s attempted new pay deal a return to “bad old days”?

Deliveroo sparked a rebellion among a section of its London delivery workers after trying to impose a unilateral change to their pay structure. It was going to change from £7 per hour plus £1 per each delivery to a straight £3.75 per delivery.

In essence this was a change from a fairly regular and reliable paycheque to payment on piecework rates. If Deliveroo users were to choose not to order much food, some Deliveroo delivery workers could find themselves earning under the minimum wage, yet they weren’t responsible for generating overall customer demand. The advantages seemed to be all stacked up in the employer’s favour.

Although Deliveroo claimed the change had received a warm response when they crowdsourced initial reactions to the idea, either they crowdsourced among an atypical sample of their delivery workers or their claim was no more than a bit of loose-lipped ‘management speak’ after the event.

Either way, they have backtracked and claim they are offering their workers the choice of which pay deal they want to be on. The issue has brought under a spotlight a bigger question of whether the delivery workers are employees or self-employed, but is this trend the best way for employment and remuneration to develop?

It’s of course not confined to Deliveroo. Several of the new disruptor brands that have shaken up the ways of doing things by traditional businesses are hailed as part of a great new dawning of flexible employment, deliverers of a work/life balance where individuals can create lifestyle patterns and targets to suit themselves. Though some workers claim bullying tactics force them to work longer hours than they wish to.

And there are wider implications. Cash savings for Uber users mean less income for the families of ‘regular’ taxi drivers; greater use of Airbnb can reduce prospects for hotel workers.

I’m not being resistant to change and trying to put disruptor brands back in the genie’s bottle, but the ‘caring sharing’ ethos that’s meant to be part of the crowd economy sometimes seems to have quickly worn a bit thin.

Deliveroo's attempted new pay deal a return to "bad old days"?History can give us some lessons. I live near to London’s Docklands, today a thriving centre for international finance. Up until fifty years ago international trade here meant the arrival of ships from around the world loaded with goods. Canary Wharf was for ships arriving from the Canary Islands with fruit and vegetables. And irregular workers paid on a piecework basis often carried out the job of unloading the pre-containerised cargoes.

Deliveroo's attempted new pay deal a return to "bad old days"?This is The George, a long-standing traditional pub on London’s Isle of Dogs, a stone’s throw from the finance centre and even closer to the former Millwall Dock that’s now home to a sailing and watersports centre. It’s popular with local residents, some of whom have lived there long enough to remember the scenes that used to take place in the street outside the pub up to the 1960s.

When dockyards needed extra workers to unload ships they sent lorries round to several places where dockers would congregate early in the mornings in the hope of being offered work.

When faced with a hungry family at home it really was survival of the fittest, and street fights were commonplace as dockers competed to get a place in the back of a lorry for the privilege of a day’s work. Pieceworkers in the docks did dangerous, tiring, physical work for irregular pay with no sickness benefits and no paid holidays.

It’s a story of a different London to the Swinging Sixties and Carnaby Street. So maybe let’s be careful what we wish for if the transformation of established business models made possible through mass personal connectivity creates business opportunities where entrepreneurs try to rely on piecework employees they want to classify as self-employed. It doesn’t sound very Millennial-minded, it’s more like 19th than 21st century.

A crowdfunding project quickly started raising money to replace wages lost by Deliveroo delivery workers who went on strike in protest, and they are being encouraged to join the Couriers and Logistics Branch of the Independent Workers Union, IWGB CLB.

Update on 30 October 2016

Today the Sunday Times reported that following last week’s landmark ruling that Uber drivers are not self-employed, and should receive the minimum wage plus holiday pay and breaks, the law firm that won the case confirmed they are in talks with workers at Deliveroo: “Bicycle couriers push for staff rights.”

In its Editorial in the same issue the paper warned against the risks of over-legislation stifling the gig-economy. Many journalists have for years been self-employed writers and are perhaps better able to manage issues such as lack of holiday and sickness pay, having some savings to cover emergency costs and periods of not working, and completing self-assessment tax returns. I’m not sure the majority of Uber drivers or Deliveroo workers are as educationally equipped or financially well rewarded to be able to plan careers in the same manner with such personal choice of a work/life balance.

 

“Best Funding Solutions For SMEs” – a conference in London in May 2016

Best Funding Solutions for SMEs

This event in east London’s Mile End Road explored a comprehensive range of funding options available to SMEs, including equity and debt crowdfunding. I attended in my capacity as an independent crowdfunding adviser. Here is my summary of key points from the day in four sections:

A)  An approximate, overall market background of funds secured by UK SMEs in 2015

B)  The range of funding opportunities available to SMEs

C)  Concerns for SMEs to be aware of when raising funds to grow

D)  Insights on successful equity crowdfunding

A) Overall market background

Best Funding Solutions for SMEsMatt Adey of the British Business Bank presented an overview of the funding landscape, the trends and latest figures available on financing SMEs in the UK.

Many small and medium size business owners, particularly in early days, prefer to bootstrap their way through rather than commit themselves to any obligations to third party finance providers. The extent of using someone else’s money may be restricted to existing bank account overdraft facilities or credit cards – which are already in place and immediately usable click resources.

61% of SME owners that do go further use just one source of external finance and in most cases that is their bank. Bank lending to SMEs is recovering, said Matt Adey, despite the continuing groundswell of media comment to the contrary. What clouds the picture is that high street banks are cutting overdraft facilities, according to Bank of England figures, whilst at the same time making more funding available through loans.

Awareness of other sources of finance is growing, as shown by research conducted for British Business Bank. Almost half of UK SME owners were aware of crowdfunding as a source of finance when the research was carried out in October 2015.

B) The range of funding opportunities available

    1. Asset-based lending
      This is effectively peer-to-peer pawnbroking, securing short-term loans against assets provided as security, as explained by Richard Luxmore of Funding Secure. No business plan or cashflow projections required, just an asset the lender will keep if you don’t make the repayments.
    2. Stock market flotation
      Companies in the EU can be as large as up to 250 employees and a turnover of €50m and still be an SME. Nick Parker, FD of newly floated Yu Energy took delegates through his recent personal experience. Yu Energy floated on AIM in March 2016 based on a turnover of £3.9m the previous year.
    3. Bank loan
      The biggest source of SME funding and on the rise, explained by Ian Warren, Senior Lending Manager at NatWest Bank. Total bank lending is increasing, though to some people it doesn’t seem so because overdrafts for SMEs are being cut.
    4. Peer-to-peer lending
      Best Funding Solutions for SMEsThis sector was represented by Jasper Ehrhardt, MD of Funding Knight, and Maria Samayoa, Production Manager at rebuildingsociety.com. SMEs generally have to show a minimum two year trading history.
    5. Equity crowdfunding
      Best Funding Solutions for SMEsThis sector was represented by two platforms: Frank Webster, Campaigns Director at Seedrs and James Sore (pictured), Chief Investment Office at SyndicateRoom. They both stressed that crowdfunding is no easier way of raising money than any other method. The sector has brought opportunities back to the general public to make direct investments in businesses. It is highly regulated, though investors still have to take responsibility for their decisions and conduct due diligence.
    6. European Union
      Chris Farmakis, EC Funding Manager at GLE Group, explained that through the Enterprise Europe Network they can provide EU funding for “highly innovative SMEs with a clear commercial ambition and a potential for high growth and internationalisation.
    7. Pension-led funding
      Best Funding Solutions for SMEsAnthony Carty of Clifton Asset Management pointed out that corporate pension funds are mainly invested in equities, in companies. So why not invest your own pension in your own company? They verify that it makes sense, to the extent that just 1-in-5 applications are authorised. This process can take three months. If you make it, you can get the government benefits from putting money in your pension, and then put it to work for your business. “It’s like having your cake and eating it,” said Anthony.
    8. Invoice discounting
      Explained by Helen Mackenzie of Platform Black. You can get a high proportion of an invoice’s value very quickly rather than wait for however long it’s going to take to get paid the normal way. Obviously a business has to be trading to have some invoices, so it doesn’t help startups. Platform Black particularly want to work with businesses over two years old with a minimum £500,000 turnover.

C) Concerns to be aware of when seeking funds to grow

  1. Your personal and business credit rating.
    Martin Mitchell and Jamie Allan of Experian highlighted the importance of making your credit score attractive to investors. This included checking for unknown County Court Judgements against an individual or their business. Simple things like paying bills on time improves a credit score. Click here for further information on access to monthly or annual reports.
  2. Intellectual property protection and ownership.
    Best Funding Solutions for SMEsSeeking investment involves telling your secrets, advised Clive Halperin of GSC Solicitors. Make sure what you tell people can’t be copied or stolen. There are trademarks, copyrights, patents and design rights. Make sure you understand the differences and use the most relevant one(s). Also, investors will not be keen if the business does not own its own IP. So don’t try to be clever and own it separately somewhere else.
  3. Shareholders agreements.
    This was also covered by Clive Halperin of GSC Solicitors. Shareholder agreements have to look to the future, not just reflect the present. Give yourself room to manoeuvre if a business partner stops pulling their weight. Allow for death, incapacity and for simply wanting to do something else instead. Consider all circumstances of share transfers, issuing new shares, restrictive covenants, deadlock resolution procedures, and more.
    Best Funding Solutions for SMEsAnd as Bill Morrow, CEO of Angels Den later added: “If you sign anything [i.e. a shareholders’ agreement] and you don’t know what the likes of ‘tag and drag clauses’ are then you will not survive.” Don’t totally rely on advisers, make sure you actually understand it all.
  4. Secure EIS and SEIS tax advantages for investors.
    Founder and CEO of P2P lender Startup Funding Club, Stephen Page, explained the value of these tax break schemes for investors. Business seeking investment should be ready in advance, particularly if the end of the tax year is looming.

D) Insights on successful equity crowdfunding

  1. It requires and dedication time to identify, locate and get in front of enough potential investors to find the one(s) who will back your business.
    Best Funding Solutions for SMEs
    Frank Webster, Campaigns Director at Seedrs (pictured) said: “To raise money, get out there and talk about it [your business]. To potential investors there is nothing special about your business. They’ve heard it all before. So share it.” Or as Paul Grant of The Funding Game put it: “You’ve got to kiss a lot of frogs to find a prince.” He reckoned that on average it takes 50 approaches to find an investor.
  2. Share your idea, don’t hold back, and don’t expect people to sign an NDA before you tell them about your business idea.
    To reinforce what Frank Webster of Seedrs said, Stephen Page, founder and CEO of Startup Funding Club said: “I’m not going to sign over a thousand NDAs a year. I know what we talk about is confidential. Investors aren’t going to steal ideas, it’s not what they do.”
  3. When you do find a potential investor who shows interest, don’t rush things.
    Best Funding Solutions for SMEsDon’t immediately give a potential backer too much information. No one is going to stop what he or she is doing to read your 25-page business plan e-mail attachment on the strength of a brief conversation you had the previous day. “Investors have to be wooed,” claimed Roderick Beer of the UK Business Angels Association. “Don’t ask to marry them on the first date,” advised Paul Grant (in picture). Personally, I’d say don’t make yourself sound desperate as it can put people off.
  4. You need a team
    Investors will be wary of a one-man band, no matter how much of a genius you think you are. All the people from Seedrs, SyndicateRoom, Angels Den, Funding Knight, Invesdor and Startup Funding Club supported this point.
  5. Don’t rely on your Business Plan
    Best Funding Solutions for SMEs
    Investors will want to know you have prepared one, but as to how accurate a plan for a startup can ever be is acknowledged as a mystery. What’s more important, said Stephen Page of Startup Funding Club (pictured), is knowing what your cash flow is going to be like, and how long it will be before you need to raise more funds. And as the person who has had the great idea for your business, if you can’t write your own business plan you will be dead in the water, said Bill Morrow of Angels Den.
  6. A mentor can be more important than money.
    Money can be raised later, because maybe what’s needed first is a mentor with experience and contacts in the business sector you want to operate in. Jonathan Pfahl, Founder of Rockstar Hub International said they can effect introductions, and Bill Morrow of Angels Den said they even train their investors on to how to be better mentors. That’s why, he claimed, 94% of the companies that have raised funds through Angels Den remain trading.

If you are considering a crowdfunding project, whether equity or donations-for-rewards, I am an independent crowdfunding adviser with a marketing rather than a financial background. Please contact me about anything to do with identifying and building your own crowd of backers, and underpinning your crowdfunding project with an effective marketing campaign to get noticed and deliver results.

Clive Reffell, Comanche Communications and Marketing