This article will explore how start-ups can create irresistible investment proposals.

Imagine you saw a tinned soup on a supermarket shelf, you might have seen something like it before, but possibly not the exotic flavour. You’re intrigued enough to pick it up and take a closer look. The packaging is poorly lined up, some ingredients are missing, the allergens are unclear and there are some spelling mistakes. It’s unlikely to get into your basket.

So I ask myself why, over 16 years of seed investing, and thousands (upon thousands) of investment decks, have I seen only a small fraction of investment proposals that have been thoughtfully constructed to sell the investment? With the right amount of information to give confidence and the creativity to instil some emotion?

Any pitch document should be aiming to make any investment proposals irresistible, and land in the investor’s ‘basket’ (their portfolio). So the ingredients of a compelling pitch to investors are the same as a compelling offer to consumers — differentiation, distinctiveness and price.

1. Differentiation

• Insight: It is difficult to create new ideas out of the same view of the world that everyone else has. A real innovation is usually born from some inspirational insight that uncovers a truly new need or opportunity.

Effective insight can paint an irresistible picture for investors. This can be qualitative insight — such as some quotes from a focus group or other potential consumers, and/or your personal ‘aha’ moment where you first appreciated the opportunity. The aim is to place your investors into your consumers’ shoes, so they feel the need. Ideally there will also be some quantitative insight — the size and growth of the potential market and, within it, the specific need being addressed.

Human stories, about consumers and their needs for example, create an emotional connection to the market. Supporting these with the rational numbers to illustrate market size and growth and the part of the market that is addressable then pulls an investor into the commercial opportunity.

• The big idea: If an investor has appreciated the market need, by now they are desperate to hear your answer. Again, try to create some emotion. Bring the idea to life as much as you can. Even a rough sketch will say much more than many words.

Describe how the idea addresses the market need, how differentiated it is from the competition and how protectable it is – patents, trademarks or proprietary technology or process. However, be careful not to publicly publish anything about an idea for which you are subsequently looking to file a patent request.

• The business model: Sometimes, and ideally, the way you are setting up to do business is a source of differentiation — the ability to do something cheaper, faster or better than your competitors. Your secret sauce might be your channels to market, production, logistics, price, promotion and/or partners.

At seed stage you are unlikely to have it all worked out, so explain the choices you have made and be clear about any assumptions made prior to experimenting with the reality. Any early evidence will add credibility, as will your plans for how to quickly validate outstanding assumptions.

2. Distinctiveness

• Brand and marketing: Particularly for consumer businesses, but also for any other, an investor will want to see your talent to excite your audience, articulate your proposition and stand out from the crowd.

This is much, much, more than just a logo. It’s how your business ‘shows up’ on the page and how well it is already showing up in the rest of the world (your website, existing product or service packaging etc). Even if your thinking on this is so far unsophisticated (or you have limited PowerPoint or Word skills), it costs no more to execute something well than badly (and there is plenty of online training available). Anything associated with your brand that is slapdash will signal that you are uninterested in how all people (customers, clients, new recruits, suppliers, other investors) perceive your brand.

Beyond the creativity it is also some rationale stuff like a marketing plan — how you will get the message out, through which channels and how much it will cost?

• The team: Regardless of how compelling the market and the proposition is, the business will fail without the right team. And this is the element of your business that no one can clone.

This is sometimes about experience. Investors will value a team with experience in their chosen market and someone experienced as an entrepreneur growing a start-up. A successful exit is most highly valued but any entrepreneurial battle-scars will add credibility.

But this is also about personality & behaviours. Curiosity, empathy, energy, resilience, tenacity and charm are some of the aspect we value. How can you demonstrate these on a page or when talking to investors?

It’s important to show how a team’s strengths add up to more than the sum of the parts. If there are known gaps in a team, or because there is just one entrepreneur, it adds credibility to point these out, with a plan for addressing them.

3. Price

• The deal: If you are raising funding in return for equity and have a firm valuation for your business, then state the funding you are looking for and the valuation, i.e. to be clear about what equity you are giving up in return. It saves wasting anyone’s time. But you may be in early discussions and be looking for feedback about valuation — that’s fine, just make it clear this is to be negotiated. (In my next column we’ll look at setting a valuation).

• Financial projections: The deal now is only one part of the price to an investor. They are looking towards the potential future value to understand the relative value now and whether the difference justifies the risks and limited probability of success.

Any business looking for funding should have a three-year profit and loss account and at least a 12-month cashflow forecast. Highly capital-intensive businesses should also have a projected balance sheet.

That said, I rarely believe the numbers in a start-up’s business plan — it usually needs a few months of trading to put together a credible forecast. But I do look hard at them to understand that the entrepreneur has a good sense of finance, understands their commercial model and is ambitious whilst not deluded with an unrealistic level of growth. Then use the numbers to make my own projection of what might happen over the next five to seven years.

Whilst these are some components that should feature in any investment story, there is no ‘one size fits all’ answer. Every business has different strengths to highlight and should be getting across their own tone of voice. Indeed, nothing puts me off more quickly than seeing a business plan template pulled off the web and populated with words but no personality.

Maybe these points will help you move beyond a blank sheet of paper. If not, googling ‘pitch decks’ throws up various sites with lots of examples. it is useful to see what others have done — particularly when they have been successful. Although watch out for heavy tech and US bias. And some amazing businesses have funded despite their pitch deck, not because of it. You can sign up for crowdfunding sites and consider why is one campaign is funding and another not? Or ask experienced investors to share their favourite examples (without breaching confidentiality).

It’s helpful to have several versions of an investment proposal. You might have a one or two-page summary, a PowerPoint deck of a dozen or so slides, a full document and/or maybe a video — so you can target the occasion and the investor in the most appropriate way. However, regardless of format all but the shortest of summaries should address the points above and be dripping with personality and a brand tone of voice that brings the opportunity to life.

Are you interested in equity investment?

The Start-up Series, hosted by smallbusiness.co.uk, gives company the chance to secure equity investment of £150,000 to £250,000 every month. To find out more, go here.

Written by Matthew Cushen, co-founder at Worth Capital

Further reading

Small Business and Worth Capital partner to relaunch The Start-Up Series — with £250,000 equity funding up for grabs each month!

7 funding choices when it comes to financing your start-up

How start-ups can qualify and take advantage of EIS and SEIS 

The post 3 ways start-ups can create irresistible investment proposals appeared first on Small Business UK.

Raising finance is tough, but there are a number of steps you can take to rescue a struggling crowdfunding campaign.

In my years of running a specialist crowdfunding agency, I like to think I’ve developed a pretty good intuition around what will work in a campaign and what won’t. In reality, I’m not often too far wrong, but I am still constantly surprised about which ones take off like a rocket and which ones have a hard time meet their target.

What causes a crowdfunding campaign to falter?

I think that one of the biggest issues can come down to timing, which is hard to predict. New regulations are published, trends change quickly and competitors launch new products to market ‒ all of which could hinder the chances of a successful raise.

Some campaigns struggle to get initial cornerstone investment. Instead, smaller investments drip-feed into the campaign page, never really giving it any momentum or exposing it to a wider crowd of potential investors.

‘One of the biggest issues can come down to timing, which is hard to predict’

Finally, and potentially the most manageable, is that crowdfunding campaigns can be let down by unclear messaging or simply a lack of communication. The founder gets so busy speaking to investors and organising events that they forget those email blasts or social media posts that keep the early momentum going.

Go on the PR offensive

Press and trade publications are a great tool for getting your brand out there, building a name for yourself and educating potential investors around the problem or solution you are addressing. The audience for these publications can run into the millions and tend to be quite focused on specific audience segments, making them ideal outlets for your brand.

Unfortunately, a lot of business owners think of PR as being about promotion ‒ they want to talk about their product or service at length. But this type of content is rarely published by editors or viewed by the audience. There are so many new products, so many crowdfunding campaigns and so many people who want to promote themselves that editors are swamped with such content.

Ask yourself: would you read an article about another crowdfunding campaign? How about promotional press coverage simply talking at length about a product? Probably not.

But you probably would read an article that looked useful or interesting on an intellectual level. You’d almost certainly check out an article that offered specific tips or advice relating to your business or sector, though.

Find a way to offer your knowledge and expertise that genuinely helps or solves a problem your target audience has. Then find publications with the same audience ‒ they are often more than happy to publish free, non-promotional content.

Finally, make sure to include an ‘about the author’ section and byline containing information about your brand, product and links to your relevant pages. People will often read these sections and discover your crowdfunding campaign more organically.

Get specific with LinkedIn and the Angel Investor Network

If your campaign is struggling, one of the most important things to do is to speak to investors, form a personal connection and discover whether they have any specific concerns or issues holding them back.

The best places for these conversations are LinkedIn and the Angel Investor Network (AIN) as you can be incredibly targeted about who you speak to. The advanced search function on LinkedIn will help you connect with new potential investors, and you will need to write a 300-character invitation to connect message.

You will also be able to find a number of potential investors in your existing network of connections. For these contacts, I suggest writing a more tailored message reflecting your shared interests and/or history. Even though there is no character limit for these messages, they can be difficult to read properly on LinkedIn, so it’s best to keep them as concise as possible.

AIN is perhaps even more targeted as you know that everyone active on the platform is an investor with money to use. You should draft a short nudge message introducing yourself and your brand, sending it to every relevant investor. From there, you can follow up their interest with more conversational messaging, addressing any questions or concerns they may have.

Advertise on social platforms

The vast majority of people in developed nations use some form of social media, which makes it an excellent place to advertise your brand and crowdfunding campaign. While Facebook still boasts the highest number of active users, LinkedIn ads can be highly targeted towards specific job roles or professions, allowing you to better tailor your messaging.

Whatever platform(s) you decide to advertise on, make sure you create ads around different interests, motivations or concerns. An environmental product, for example, may excite some investors due to its huge market potential, while another group may see it as the solution to their woes. Try a range of different messages and target criteria to see what messages resonate with which audiences.

Promoted posts are also a great way to ensure your published PR articles get in front of as many people as possible, reminding them of your brand or product, educating them around the issues connected to it and enhancing your reputation as a thought leader in the field.

If you find your crowdfunding campaign isn’t getting the investment you need to maintain momentum, it’s important to face the issues head-on and be proactive, rather than dismiss it as a temporary blip. Deploy these tactics to help get your campaign back on track and turn a struggling campaign into a successful one.

John Auckland is the founder of TribeFirst.

Read more

Crowdfunding UK small business: everything you need to know

Looking for finance? SmallBusiness.co.uk is working in partnership with trusted lenders to help you find the best business funding deals. Find out more here.

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Over the last ten years, equity crowdfunding has emerged as one of most innovative ways to raise growth. It has democratised finance, providing opportunities to retail investors which would otherwise be restricted to institutional investors such as venture capital or private equity, and it has provided a fresh way for companies to access growth finance.

That has proved to be a winning formula for two of the biggest crowdfunding sites: between them, Seedrs and Crowdcube have raised hundreds of millions of pounds for hundreds of high-growth companies.

But could we be about to witness the dawn of crowdfunding 2.0?

Late last year, the UK’s primary financial regulation watchdog, the FCA, quietly approved the first STOs or ‘security token offerings’. They’re the new kids on the block that share many of the benefits of crowdfunding – and then some. Experts are already estimating that STOs could boom in 2019, raising billions globally.

What is a security token?

Much like traditional crowdfunding, a company wishing to raise finance to grow its business can sell equity to investors, but rather that selling shares via an inefficient and dated offline process, instead it can sell so-called security tokens. These security tokens offer the same rewards as traditional equity such as ownership, dividend and voting rights. Essentially, they are digital representations of the same financial instruments which investors have been buying and selling for decades.

STOs are regulated by the FCA, so they offer investors protections and safeguards against fraud, theft and abuse of shareholders’ rights. Currently the amount that can be raised via an STO is capped at £1 million but this is expected to rise to around £7 million in due course – no mean sum for an ambitious start-up.

It all sounds very similar to traditional crowdfunding, so what’s the point, you may ask?

What are the advantages of STOs?

STOs have some important advantages which will make a difference to both fundraising entrepreneurs and their investors.

For a start, security tokens are built and managed on blockchain technology. That may put off a lot of investors, as crypto currencies have crashed in the last few months. However, STOs can be priced in fiat currencies such as pounds or dollars, so investors are not exposed to the perils of crypto currency volatility.

The efficiency of blockchain technology means better transparency, a simpler and easier fundraising process, with lower administration and management costs for both companies and investors. Entrepreneurs can also reach a wider universe of international investors.

Those investors have greater access to investment opportunities that, up to now, have been the preserve of VC funds only. STOs, you could say, will help to democratise finance.

How do investors make money from STOs?

Further, the ongoing development of a real, cross-border, 24/7 secondary market will offer real liquidity for both investors and companies raising money. Greater liquidity is one of the major problems facing angel and seed investors with the average lock-up time for investment being between eight and nine years. Greater liquidity also supports higher valuations as creating a bigger market draws in more investors.

For those early investors, a properly functioning secondary market means they won’t have to keep their money trapped in companies for years on end; it also means efficient price discovery enabling easier, more transparent valuation of investments.

STOs vs initial coin offerings

STOs build on the advantages and excitement of so-called ICOs or initial coin offerings. ICOs also involve the sale of tokens built and managed on blockchain technology, but ICOs are not regulated and therefore offer investors fewer protections and rights. Nevertheless, they have proved to be an enormous success, raising more than $6 billion from investors worldwide in 2017 – that’s equivalent to ten per cent of all global venture funding. STOs will seek to build on this success, offering investors better regulation and protection.

There are already many STOs in the pipeline for 2019 with companies looking to raise growth finance. These include companies with “real economy” applications such as DOVU which aims to revolutionise the world of transport by encouraging drivers and commuters to share their travel data. This data is shared between car hire companies, manufacturers, insurers and others, while participants are rewarded with monetisable tokens.

Jaguar Land Rover’s ventures arm has backed DOVU, as has government investment fund Creative England. DOVU, which has already signed partnerships with one of Britain’s largest travel groups as well as leading car makers, is now launching an STO to diversify its funding base.

Is my start-up suitable for an STO?

However, it is important to note that STOs are open to any company, not just blockchain-based business models, making them a viable alternative to crowdfunding, and offering real advantages over VC funding, bank loans or IPOs. Importantly, tokenisation is not just restricted to equity sales – just about any asset or revenue stream can now be tokenised using blockchain technology – from a factory, to a forest, to private debt, to a portfolio of residential properties, even to an art collection.

Suddenly, the value locked up in corporate and personal balance sheets can be cheaply and easily monetised. Indeed, industry experts predict the STO market could grow to $3 billion in 2019.

As we all know, high-growth companies create the most jobs and wealth in the UK and beyond. Their biggest, perennial issue is a lack of access to finance. Often, start-ups do not have assets to offer as collateral for bank loans. VC funds can demand an element of control in a company – through seats on the board. Meanwhile their investors often have no say in where their money is invested – and that money could be locked up in illiquid investments for many years.

STOs are no silver bullet but they do provide many answers to these issues and build on the benefits introduced by traditional equity crowdfunding over the last decade, and ICOs in the last 18 months.

For ambitious entrepreneurs and start-ups looking for help to grow their business, STOs now offer yet another method to help them realise their full potential.

Ransu Salovaara is a co-founder and CEO at TokenMarket, an exchange and research company specialising in launching blockchain technology projects

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UK spa group PURE Spa & Beauty has announced the opening of its first crowdfunding campaign, seeking upwards of £150K to scale up its urban wellness brand around the UK. Through Crowdcube a Pure Spa investment will start at £10 with VIP rewards and benefits on offer for shareholders investing £50 or more.

PURE, which has been going for 16 years, currently operates spas in London, Edinburgh, Glasgow and Aberdeen and hopes to open more outlets around the UK – with London, Manchester, Birmingham, Leeds, Bristol, Newcastle and Liverpool all on its target list. It employs 150 staff delivering 100,000 treatments every year to a database of 220,000 active clients. The company says All PURE spas are currently reporting 20% year on year growth.

The company has recently launched a PURE retail and professional range of natural skin care products which are sold in its spas, its PURE web-shop and through selected retailers as well as being used in PURE treatments. In October 2018 the company launched the PURE Beauty Zone, an online marketplace for the flourishing clean beauty sector which sources and sells a carefully curated range of clean, top quality face, hair and bodycare brands.

Also see: What insurance do I need for my beautician business?

PURE Spa & Beauty was founded by chartered accountant Becky Woodhouse. She spotted a gap in the market for a high-quality spa close to her office in Edinburgh, offering treatments after she had finished work. She opened the first PURE spa in the city’s financial district in 2002. The company model is based on this original idea for high quality beauty and spa treatments for men and women conveniently located in cities.

Becky Woodhouse said: “We are excited to be launching our first ever fund raise which will give our 220,000 wonderful clients the opportunity to own a part of our business. We know from feedback and reviews that PURE clients have come to love our spa and beauty treatments, products, environment and the service they enjoy from the PURE team. Accessibility is at the heart of our business, and what could be more accessible than offering share ownership in our business with investment starting at £10?

“In line with the growing interest in wellness, our plan is to open new PURE Spa & Beauty locations in high footfall retail centres across the UK’s biggest cities. We have identified a large client demand for our accessible spa and beauty model in many centres around the UK, and we are very ambitious to take our 16 years of experience in successful spa operations to a wider UK market. We hope that our clients and investors will join us by becoming part owners of our wonderful company and share in the next phase of our exciting journey.”

purespauk.com

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Crowdfunding sites like Kickstarter, Indiegogo, and Seed Invest have gained their popularity because of the value they present to investors, backers, and people willing to try new products. But creating one from scratch will take some effort on your part.

Fortunately, this guide was designed to give you three quick tips to help ensure that your platform is a success. Let’s start!

Get projects on your platform

Since this is a two-sided market, you’ll have to increase the number of project initiators within your platform. When starting off, we suggest that you pick the first projects you want on your front page. The projects should be interesting but not too much that you confuse your viewers. Doing this allows you to focus on which projects are most important and assist them in reaching their funding goals.

Also, it’s more newsworthy to write a story about a project that was funded successfully than a project that wasn’t. So, you need to start in the right direction, looking for projects that have completed their campaigns and journalists that are happy to write about them.

See also: How to launch a successful crowdfunding platform

To attract your first projects, you should create a ‘call for ideas’, like how other start-up indicators do. Having web entrepreneurs give support a crucial step towards your platform. Then, once your audience is established, you can watch your crowdfunding platform support the initiatives and begin to run itself.

Get investors/web entrepreneurs to promote your platform

Having a successful platform means that it’s reached the public and the critical mass. While this is a hard objective to achieve within the first few months, it’s possible if you dedicate time and effectively plan your project for success.

One thing that can aid you is the investors and the web entrepreneurs on your platform that act as promoters and website ambassadors. Because of this purpose, you need to curate both parts of your platform’s community (backers, and project initiators).

Also, make your team members feel as if they are apart of something new to the company. This is known as community management, which is used to help your community members and influencers feel this way. In fact, having a successful campaign will have users act as the advocates and promoters of the website, which leads to more community members on your platform.

Create a development team

Without your development team, your crowdfunding platform is less likely to be successful. When hiring them, you need to ask yourself

• What types of apps do I want with this platform?
• How much do I have to pay them?
• Who can manage this team so that they create the apps on time?

Once you have those questions answered, you need to interview prospects for your development team. Look for developers who are innovative, and are ready to help you in building a crowdfunding platform. Avoid ones that seem disinterested, inexperienced, or unable to help meet your project deadlines on time.

Conclusion

To ensure that the crowdfunding platform is a success, you have to make sure that everyone on your team is onboard and is willing to create the applications needed to attract your audience. Ultimately, keep your investors and backers motivated to use your platform so that you can become the next Kickstarter platform!

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New research from accountancy and business advisory firm, Cowgill Holloway, reveals ‘Crowdfunding’ is the UK’s most frequently searched term on business funding.

Cowgill Holloway has produced a league table of the most searched terms, highlighting the popularity of crowdfunding searches amongst other alternative finance terms including ‘p2p lending’ and ‘crowdsourcing’. The term ‘crowdfunding’ was significantly higher than the terms ‘business loan’ and ‘bank loan’, suggesting that awareness of certain forms of alternative finance is improving.

However, searches for ‘asset finance’ and ‘invoice finance’ remain very low, indicating that there is still work to be done in building awareness of all the options, rather than those which have perhaps received more media attention in recent months.

The research also follows recent statistics showing that just 230 businesses benefited from the bank referral scheme which was set up just over a year ago by the government, highlighting the work to be done in ensuring that businesses aren’t effectively stunted by inaccessibility of finance.

Director of Cowgill Holloway Business Funding, Benjamin Day, says, ‘I don’t think anyone will be surprised to see the popularity of such search phrases rising, but what has been interesting to note is that searches for ‘crowdfunding’ have actually overtaken searches on traditional forms of finance.

We’ve also seen big budgets spent on digital advertising for these newer types of funding meaning people are seeing these brand names appear at the top of the advertising rankings – as well as the organic ranking – even when people are searching for funding quite generally.’

Benjamin continues, ‘Businesses we are meeting with are increasingly enquiring about alternative means of securing finance. They are ambitious and are demanding options. No longer does a one size loan model fit all; it’s a complex matchmaking process to find a bespoke solution to bring business goals within reach, sometimes incorporating a number of finance methods.

This is why we launched our business funding arm – the sheer range of solutions available can be overwhelming and for a business owner already spinning many plates, it’s near impossible to survey the market with enough attention to be confident that you have the right solution.’

Further reading on crowdfunding

• Alternative finance: Opportunities and risks for small businesses

Looking for finance? SmallBusiness.co.uk is working in partnership with trusted lenders to find the best business funding deals. Find out more here.

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One of the most challenging aspects of getting a business off the ground is funding. You can attempt to venture down traditional avenues to raise the money needed, but if you’re new to entrepreneurship, the odds of being able to secure funding through these channels is pretty slim.

In fact, 60 per cent of start-up entrepreneurs admitted to using personal savings more than any other source of startup financing.

So, what happens if you’re rejected by the bank, can’t bear the thought of filling out lengthy applications or are struggling to find a personal investor to believe in your project as much as you do? Previously, the temptation to shoot down your idea as an unfulfilled dream and give-up may have been very real – but I can assure you that it doesn’t need to be like that anymore.

How do you feel about the concept of ‘money you don’t have to pay back’? This is money that you can raise from the crowd – and probably from the people who your idea will impact the most – through running a Crowdfunder project. You can begin to make all of this happen in less than a minute, in your pyjamas and sat at the computer at 3am… if you so wish! No confusing loan application processes, no bank meetings and no unfulfilled dreams to see here.

Crowdfunding is a one of the UK’s fastest growing alternative finance options. It’s the practice of funding a project or venture by raising money from many people who each contribute a relatively small amount. Investors can be friends, family, customers, private institutional investors or complete strangers.

See also: Crowdfunding a UK small business – everything you need to know

Crowdfunding is a fantastic way to test your idea. A successful project proves there is demand for what you’re doing, and gives you confidence in your idea. Furthermore, crowdfunding is for life, not just for fundraising. The people who support you become your customers, volunteers and members. Your supporters take part in the journey, meaning they make incredible ambassadors for you in the future.

Running a successful crowdfunding campaign can help to unlock loans and investment or can be a pre-curser to a much bigger equity crowdfunding or community shares campaign in the future. It proves you know what you’re doing.

But change brings with it fear and often a misconception that crowdfunding is both complex and risky. This is simply not true. It’s a case of educating how crowdfunding could work for you and how to maximise your chance of doubling your money.

Five hacks for crowdfunding success

There are five simples hacks that businesses and project leaders can do to ensure their campaign ticks all the right boxes to raise as much funds as possible:

1. Look out for free money – There are many initiatives that might qualify for a boost from corporate or local council funds. Basically, if your project meets the criteria of the fund, it may get an additional cash injection. At crowdfunder.co.uk we work with many partners to ensure that projects on the platform can tap into additional funds and potentially get a splash of cash.

2. Identify a clear target audience – You will need to engage with your personal and professional contacts to make your project a success. Usually your friends and family will be the first to pledge – and it’s a good idea to line of up some of that funding before your project goes live.

The best way to start is to gather your team together and start drawing a map of your network. This network map will give you a much fuller picture of the shape and size of your crowd. Your unique network map will be the basis for all the key elements you’ll be creating next, so leave nothing out.

3. Present your story in an engaging way – When visitors land on your crowdfunding page, you need make a connection quickly and get them excited about your project.

To do this well you’ll need make sure your description is structured, concise and engaging. Add some images and testimonials to give it a professional-looking finish. Most importantly, utilise multiple touchpoints to communicate the existence of your project page to your audience, whether that be social media, press coverage or simply through your key network pillars as vocal mouthpieces.

4. Offer unique rewards and incentives – Rewards are a great way of increasing the amount of money a supporter will pledge as well as a great way for generating excitement around your project. Think about the kind of people who will be making the pledges and offer rewards that you yourself would want to receive.

5. Determine whether you have the necessary skills – Think about your strengths and weaknesses – are there any gaps in your own skillset that need to be filled? It’s a good idea to share the load then running a crowdfunding project and find people to help with specific tasks. It can sometimes feel like a lot of work for one person to do alone, so delegating can free up more of your time to focus on driving the project forward.

Run through the list of skills you need outsource and think about anyone you know who has experience or expertise in that area. The core team behind great crowdfunding projects is usually made up of two to five key people, so think about who you want on board and play to everyone’s strengths.

Once you’ve made it through your successful crowdfund, it’s time to pat yourself on the back and think about what’s next, but remember to thank everyone as loudly and publicly as you can. Most importantly, keep your backers updated with any developments, first, when they can expect their rewards and later how the business is progressing. Happy crowdfunding!

Further reading on crowdfunding

• The equity crowdfunding market: A small business guide

The post Money, money, money! It’s a crowdfunder’s world appeared first on Small Business UK.

New research on crowdfunding carried out by HEC Paris, the University of Technology Sydney, Singapore Management University and INSEAD reveals that funding efforts are weakened if ideas are deemed to be both novel and useful.

The study is the first evidence of how the Kickstarter community – those backing crowdfunding projects on the world’s largest online crowdfunding portal – values projects that pursue innovation.

‘We found that both novelty and usefulness increase project funding separately, but when these two are together they cause a noticeable decrease’, says Cathy Yang, assistant professor at HEC Paris.

‘This is deeply disappointing as the premise of crowdfunding is to support creativity and innovation’, adds Anirban Mukherjee, assistant professor of marketing at Singapore Management University.

‘When projects make both claims, backers either assume a product’s benefits are inflated, that it carries a high risk of failure or that it divides the crowd between believers and sceptics, making it hard for backers to pick a side’, says Amitava Chattopadhyay, professor of marketing at Insead.

‘Entrepreneurs therefore might be advised to frame a project as only novel or only useful, rather than both’, underlines Dr Ping Xiao of the University of Technology Sydney (UTS).

The researchers set out to address a research gap where relatively little is known about how individuals, as a large and anonymous community, respond to innovation.

By examining projects on Kickstarter to determine if projects that aspire to be innovative are successful, they sought to find out the effect of novelty and usefulness, its interaction on the amount pledged towards a project and to establish what most increases project funding.

Data was gathered across 50,310 projects in nine product categories from the launch of Kickstarter in 2009 through to February this year.

In order to understand the possible reasons for the research findings, Yang says, ‘First, a project may not successfully reach its funding goal. In this case, backers are refunded but do not receive the product.

Second, it is plausible that users on Kickstarter may question the credibility of the project creator to deliver the described product in the stated timeframe. For example, a recent study found that more than three-quarters of successfully funded projects (on Kickstarter) are either delayed or failed.’

‘Alternatively, projects on Kickstarter are proposed blueprints, rather than descriptions, of the final product. As a project evolves, the creator may make significant changes, without the assent of backers.’

The research paper titled ‘Does the Crowd Support Innovation? Innovation Claims and Success on Kickstarter’ was co-authored by Anirban Mukherjee, Assistant Professor of Marketing at Singapore Management University, Cathy Yang, Assistant Professor of Marketing at HEC Paris, Ping Xiao, Senior Lecturer at University of Technology Sydney and Amitava Chattopadhyay, Professor of Marketing at Insead.

The post What ideas are most likely to get crowdfunding support? appeared first on Small Business UK.

Since Crowdcube first pioneered equity crowdfunding in 2011 it has amassed a crowd of nearly 400,000 members, who have invested more than £320 million on the platform and have successfully funded 520 raises (as at June 2017).

According to the latest figures from Beauhurst the platform has raised the most amount of capital of any crowdfunding platform so far in 2017, more than double its nearest rival.

Crowdcube has a track record in helping business both with their first fundraising, and larger follow rounds which attract VCs to invest alongside the crowd.

Funding options

Before raising finance on the platform you need to decide what sort of finance you want to raise.

Equity investment

The majority of Crowdcube’s clients raise equity finance whereby members buy shares in a company and look for a capital uplift in the value of those shares.

Crowdcube offers both direct or nominee structures for equity investors, as well as a combination of the two. There are benefits to both: a direct structure may help you foster a stronger relationship with your investors and greater brand advocacy, whereas a nominee structure, whereby Crowdcube holds and is the legal owner of the investment on behalf of your investors, means that you will only have one legal shareholder on your share register.

While there is no limit to how much a company can raise we would always advise that you seek only to raise what you need and that the valuation of your business is realistic and appropriate to the stage of development of your business.

Debt investment

More established businesses with at least two years trading, that are able to service debt and are looking for a minimum investment of £500,000 may choose to borrow from investors by offering a fixed term mini-bond. If you qualify, and following an initial review, our specialist bonds team will help you structure the bond including the duration, suitable interest rate and maximum raise.

What you need to know before applying

You need to be a registered UK Limited company (not an LLP or Sole Trader) and over 18. Crowdcube can also potentially raise funds for businesses with a European HQ but this will be subject to certain criteria, and legal and regulatory requirements.

Do enquire early if you qualify for SEIS or EIS tax relief. Tax relief is very important to investors and will make your pitch more likely to pass the application stage.

Ready to set the world alight?

Submit a pitch application: The pitch application is made up of four elements: a short description of the investment proposition outlining your idea, market and people. Once this has been submitted Crowdcube’s expert advisors will assess whether it’s right for the investor base.

Create your killer pitch: Once you pass the original application process you will be introduced to Crowdcube’s team members who will support you through the process of getting your pitch live. You can start populating your pitch page and upload any materials that will be relevant and of interest to potential investors, including videos, presentations and background materials.

Go live and promote like crazy: Once you are ready you can activate and promote your pitch. You will have 30 days to reach your funding target. The first few days can be crucial in generating interest, so you will need a clear action plan to promote your pitch. Using your existing network of customers and business advocates also helps build momentum.

Reach your target: Once you’ve reached your target Crowdcube will work with you to close your funding round and complete the necessary legal documentation such as finalising your Articles of Association.

Receive your funding: Crowdcube will then instigate the collection of funds from investors, deducting fees from payment providers and Crowdcube’s commission.

Issue share certificates: After all investments have been processed Crowdcube will issue share certificates on your behalf, send you the final investor list and process any necessary EIS/SEIS documentation for your new shareholders. You then need to file an SHO1 form within one month of the allotment of shares (and the SHO2 if relevant).

Join the Funded Club: Having raised funds via the Crowdcube platform you can now begin to focus on growing your business with the support of a new group of loyal brand ambassadors and investors. As member of the Funded Club you will have access to all of Crowdcube’s growth services and enjoy beneficial rates with Crowdcube’s partners. It’s important that your new investors receive regular updates about how the business is doing and any plans for the future. Most companies issue a brief quarterly update with a more detailed update once a year. Share your latest news with Crowdcube and the company will help spread the news and if you’re ready to go for a follow-up round to help you continue growing just let the platform know.

How long will it take?

Preparing for a successful campaign can take a few weeks. The maximum time for a pitch to reach its target is 30 days for equity funding, although some have secured their funding in a couple of minutes. Once a pitch has ended and if the target amount has been reached or exceeded, the time frame for completing the legal documentation and transferring the funds to the business is around six weeks.

What do I do now?

The Crowdcube website is full of tips and advice to help you raise the funds you need. There is no doubt that, for some, crowdfunding a business can be a huge learning curve. It takes commitment and energy, and the success of your campaign will be directly related to how you embrace this journey. If you are ready to take on the challenge, have a great business idea and want to access a pool of nearly 400,000 investors, click here for more information on raising money on the platform.

Further reading on equity crowdfunding

• The equity crowdfunding market: A small business guide

The post How to raise money on Crowdcube appeared first on Small Business UK.

Indiegogo empowers people from around the world to raise funds for any idea by turning to the ‘crowd’ instead of banks or venture capitalists. At its core, Indiegogo is an open platform dedicated to democratising the way people raise funds for any project – creative, entrepreneurial or cause-related.

As the largest global crowdfunding platform, campaigns have launched from almost every country around the world with millions of dollars being distributed every week thanks to the contributions made by the generous Indiegogo community.

This campaign guide is the product of hundreds of conversations with Indiegogo campaigners and the combined know-how of the Indiegogo team.

Before launching your campaign

Planning your pitch

Indiegogo gives you many different opportunities to share what your campaign is all about with the world so be sure to make each of them personal. Tell a compelling story of why you are passionate about your project. Present the idea in a way that makes it something others would want to support. Put yourself in the shoes of your target audience.

Setting your goal

Make sure you understand the difference between Fixed Funding and Flexible Funding — you won’t be able to change it after your campaign launches.

• Flexible Funding: You keep your contributions whether or not you hit your goal.
• Fixed Funding: You keep your contributions only if you hit your goal.

Research your expenses and make sure you understand how much it will cost to fund your project. If you are offering perks, make sure to take their cost into account (including shipping).

Make sure your goal is realistic. You should be able to raise 30 per cent from within your own network (friends, family, etc). Strangers will want to see some traction to get excited about your campaign, which this initial group provides.

Setting a lower, more realistic funding goal often means you’ll raise more money in the end than if your goal is lofty. People want to be a part of successful campaigns; generally they don’t stop funding once a goal is reached. For larger projects, consider running multiple campaigns with smaller funding goals for each stage of the project.

Deciding your campaign length

The longer the campaign, the harder it is to build a sense of urgency and maintain funding momentum. 40-day campaigns are most successful. Make sure to leave two weeks between the end of your campaign and the date you need your funds.

Creating your perks

Is there something directly associated to your campaign that you can offer? Do you know local businesses or entrepreneurs who might want to offer campaign perks (ie cross-marketing)? Think of perks that you can add throughout your campaign to re-energise your community.

Also, don’t forget the following tips when pulling your perks together:

• When building/creating a perk, make sure you understand the steps necessary and know exactly how much money you’ll need for creation and distribution.
• When reaching out to any vendor to get a quote, don’t forget shipping costs.
• Allow ample time to fulfil your perks — it will take longer than you think.
• Make sure your perks don’t violate the Terms of Use.

Putting together your team

Campaigns run by two or more people typically generate 94 per cent more funds than those run by an individual. Find people who can help you with your campaign, especially those who may specialise in certain areas like social media, etc. Make sure your Indiegogo profiles are updated with photos and contact info.

Finding sponsors/partners

A great way to find early funding for your campaign and/or build social media momentum is to partner with like-minded individuals and organisations willing to spread the word about your project.

If you’re raising funds on behalf of another organisation or individual, sync up with them so that both parties know how and when you will disburse money to them. Add the organisation or individual to your campaign’s team to verify your legitimacy.

Planning and building buzz

Build buzz

Let friends and family know about your campaign before it goes live. Plan a ‘soft launch’ event. Encourage your close friends and family, who you know you can rely on for funding, to contribute as soon as you go live to gain instant momentum.

Leverage social media

• Create a Twitter Account.
• Sign up for HootSuite to broadcast and schedule updates across all your social platforms.
• Create a campaign-specific Facebook page, Twitter handle, and any other relevant social profile — if you don’t already have a significant pre-existing following.
• Create a blog and follow other bloggers.

Use your sponsors/partners

If you have sponsors or partners, make sure they tap into their networks to build anticipation and announce your campaign’s launch.

Plan your marketing

• Draft a press release and create a media plan.
• Compile a list of blogs and influencers with audiences that might be interested in your story.
• Email these contacts your press release after you’ve received some contributions from your friends and family to get you started.

Form a launch committee

Just before you launch:

• Invite 5-10 friends over to review the draft mode of your campaign page.
• Have them give feedback on what they like and what they would change. This engagement will encourage your friends and family to take more ownership in your project and share your campaign with their networks.

Launching your campaign

Setting up and testing your disbursement info 

If you want to receive campaign contributions via PayPal, make sure your account is set up correctly. Test that it’s working perfectly by making a $1 contribution (or more) to your campaign before asking others to contribute.

If you accept contributions via credit card, you will be prompted for your bank information via email as soon as the first contribution is received. Double check your information to make sure it’s accurate.

Fundraising benchmarks

Aim to raise at least one contribution on day one as 85 per cent of campaigns that reach their goal receive their first contribution within one day of going live.

Aim to raise a third of your goal within the first quarter of your campaign. Successful campaigns generally raise 30 per cent of their goal in under two weeks. Funding also tends to slow in the middle of a campaign, so it’s a good idea to add new perks to keep up momentum throughout.

Listen

Be ready to incorporate feedback and make changes based on the advice of your close friends and family as well as your early contributors.

The more you engage your audience, the more likely they are to spread the word about your campaign. This collaborative dynamic is one of the great benefits of using Indiegogo to fund your campaign.

The gogofactor

The gogofactor is a merit-based, data-driven method Indiegogo uses to rank campaigns. This algorithm determines which campaigns are promoted on the homepage, in the weekly newsletter, in the blog, and on our social media networks.

Your gogofactor combines a variety of online data including: your campaign activity, the completeness of your pitch, and your media presence.

Indiegogo doesn’t curate campaigns or offer paid promotion. The visibility of your campaign is controlled entirely by you and your community. The gogofactor evolves over time and depends on a variety of activities, so it’s important to keep your campaign active.

Spreading the word

Inner network

Get people excited about your campaign and have them commit to spreading the word through their various networks, both on and offline. Consider throwing a launch party to get your friends and family excited about your idea. Have a laptop around for people to contribute.

Email

Email is a great way to directly reach out to people in your network. Make sure you explain the project succinctly, ask personally for their contribution, include a link to your campaign, and invite them to spread the word. Avoid spamming your email network. People are far more receptive to a one-on-one personal ask. Though this may take a little longer, it will likely result in more contributions. Also, be sure to include your campaign link in your email signature.

Offline

Spreading the word for your campaign doesn’t only happen online. Think of ways you can spread the word in your community, and offline. Local media outlets — print, TV, and radio — are always hungry for good local content, and your campaign is a great story.

Social media

The very definition of crowdfunding implies that engaging audiences online is crucial to gaining awareness, momentum, and funds for your campaign. Social media in its various forms is a great way to get your pre-existing network excited and also connect with potentially interested individuals and organisations you don’t yet know.

Maintaining your campaign

Add perks

Add new perks throughout your campaign. 20 per cent of repeat contributions are for perks added after the campaign went live.

Run a referral contest

Award a prize to the Indiegogo user who refers the most contributors to your campaign.

Post updates

Engage your contributors using the ‘Update’ feature on your campaign page. Updates are posted to your campaign and sent to everyone who has contributed to your campaign, so they become more effective as your community grows. Post updates once or twice per week that feature your campaign’s progress (example: 50 per cent to goal), new media, or any other compelling content your audience might be interested in. Use updates and new perks to combat the usual mid-campaign lull in contributions. Campaigns that send out at least three updates raise about 115 per cent more money than those that don’t.

Continue seeking sponsors/partners

It’s never too late to connect your campaign with like-minded individuals and organisations who can help propel its success.

Sense of urgency

When your campaign has under a week left, make sure you build a sense of urgency. Time is running out to contribute.

Thank contributors

Send personal thank you email each time you receive a contribution. Some 62 per cent of campaigns that reach their goal are funded by repeat campaign backers.

Social media

Celebrate campaign milestones on social media, and cross-promotion can also be an effective tool.

Stunts

Try a ‘stunt’ in the closing days/hours of your campaign.

After your campaign

Transparency and fulfilment

Keep your contributors well-informed about the status of their perks — people are surprisingly patient as long as they know they’ll have to wait and that you’re making progress (even if there are unexpected delays).

Maintain relationships and communication with your contributors and followers through your social channels and your website or blog.

Be ready to implement your budget wisely. A number of online services can help you efficiently fulfil perks.

To more clearly see your commitments, you can export a list of contributors and perks from your Campaign Dashboard.

Look back and move foreward

Take a moment to think about what went well and what could be improved—you can use this knowledge to make your next Indiegogo campaign even more successful.

If you need to raise additional funds, consider launching a follow-up campaign, and update your old campaign with a link to the new one.

Use the ‘Updates’ tab to update your followers on your project’s progress and perk fulfilment.

Make an announcement through your social channels about your campaign ending — especially if you have a product, film, etc. that will eventually benefit from an audience. Now is a great moment to build buzz for your finished product.

For more information, including top tips, on using Indiegogo to successfully crowdfund please click here.

Further reading on equity crowdfunding

• The equity crowdfunding market: A small business guide

The post Crowdfunding on Indiegogo: A small business guide appeared first on Small Business UK.

Crowdfunding on Seedrs allows ambitious businesses in all sectors to raise capital and build a community from all kinds of investors through an efficient, online process.

All investments made through Seedrs offer voting shares to investors and use professional-grade subscription agreements to ensure investors get the same level of protection that angels and VCs enjoy.

Since the company’s launch in 2012, it has funded over 500 deals and had over £220 million invested into campaigns on the platform.

Step 1: Is equity crowdfunding on Seedrs right for your business?

Having a clear understanding as to why you are looking to raise capital via equity crowdfunding is key. It is a very public way of raising money and you can engage thousands of investors, who will be future brand ambassadors of the business.

Do you have a community? Your own community and your ability to reach them, are vital to the success of your crowdfunding campaign. They provide early support and investment to the campaign which can pique the interest of other investors who have not heard of the business before.

Lastly, there is a misconception that a business either equity crowdfunds or raises from institutional investors but this is not the case – you can do both, simultaneously. On the Seedrs platform we’ve seen an increasing number of co-investment rounds with big name VC firms such as Draper Esprit, Unilever Ventures and Ascot Capital.

Step 2: Decide which type of campaign is right for your business

Crowdfunding on Seedrs mean three types of campaigns for entrepreneurs:

• Equity – this is by far the most popular type of campaign. It offers investors the opportunity to buy shares in your company immediately at a set price
• Convertible – this is perfect for a business that knows it is going to be raising a larger round in the near future. A convertible is short-term debt that converts into equity upon the closing of a follow on round of financing
• Funds – If you are an accelerator or incubator, you will need to run a funds campaign. When someone invests in a fund on Seedrs, they become a shareholder in each of the underlying businesses that the relevant fund organiser or manager chooses.

Step 3: Select a dedicated person to manage/own the campaign

Raising investment is really hard work. It is helpful to have a dedicated person owning the campaign and managing all activities surrounding it. There is a strong correlation between prompt responses to investor questions within the discussion tab, and that investor going on to invest in the business.

Step 4: How to value your business

Below are a few key pointers from Seedrs’ portfolio manager, Shameel Khan, on coming to early-stage valuations when crowdfunding on Seedrs.

The industry in which a company operates is important in determining valuation. If a company operates in a “hot” industry (i.e. Fintech/AI/healthtech), it might achieve a higher valuation compared to another company at the same stage in a different industry.

Market size – The larger the market in which a company operates, the bigger the potential upside of an investment.

Your team – A high profile team with a wealth of experience will be able to command a higher valuation as by default they are more likely to build a successful business.

Stage of development – If a business is still just a concept then it is unlikely to get the same valuation as a company that has a product in the market with a user base.

Traction – If a company is gaining amazing traction, this will demonstrate to investors that the business has potential and could result in a higher valuation.

Unit economics – At the early-stage it is highly unlikely the company will be profitable but being able to demonstrate good unit economics for your product/service is important to show investors a route to future profit.

Step 5: Start creating your campaign

Your campaign page is the most important thing to get right when crowdfunding on Seedrs. You won’t get to meet all your prospective investors face-to-face so you need a compelling written pitch and a three-minute video to accompany. With an average of 25 campaigns live at any one time on Seedrs, you need to stand out. Communicate concisely what your company does, its market potential, its intended impact and how you will use the money raised to scale.

It is a top line business plan that tells a story, highlights achievements to date and presents a clear route to future growth. Investors should gain a sense of who a founder is, where his/her passion lies, why he/she started the business, and why it could become the next big thing. Research other successfully funded campaigns for ideas to help you stand out!

A few key elements

Idea

Bring your business to life and get people feeling as passionate as you do. Give an intro to what your business does and who you are. Treat this like a 30-second elevator pitch.

Intended impact

What solution does your business create? Talk about existing gaps in the market and how your business fills those gaps.

Substantial accomplishments to date

Shout about your achievements – use key support materials such as data, revenue, media coverage and awards to really showcase your credibility.

Monetisation strategy

How do you plan to generate revenue? Investors want a future return on their investment.

Use of proceeds

How are you going to use the cash – how do you plan to grow the business with your new funding?

Market

Who is your target market and what are the characteristics of this market (current size, distribution, behaviour, scope)?

Marketing strategy

How are you going to reach your target users or customers? Get colourful and describe how you plan to raise awareness of the business and attract new users.

Competition strategy

Who is the competition and why do you blow them out of the water? Give investors an overview of the competitive landscape so they can really understand the scope.

Providing evidence

Make sure everything you say is fair, clear and not misleading. Seedrs has a responsibility to investors to ensure that the information that they read in each campaign is complies with FCA financial promotion guidelines.

Step 6: Create an engaging video

Making videos for crowdfunding on Seedrs doesn’t have to be expensive, but the process is very important, so it is crucial to get it right. This is an investor’s chance to get to know you in a 2-3 minute window. A video should be slick, engaging, insightful and sincere. Tell your story and talk about your service/product and its market potential to remind investors why they should back you. Watch a number of crowdfunding videos for inspiration.

Include:

Product demo

A quick teaser trailer giving an intro to your product, around 30 seconds in length. Ideally the first ten seconds should show your product, the next ten should explain it and the final ten should give a quick overview of key features and USPs.

Why

Show investors your founding team and tell your story, cause or belief. Why are you doing what you’re doing, why is there a problem?

How

Use this part of the video to explain how your product/services solves the problem, how it works, and demonstrate any customer testimonials you might have.

What

Here you can discuss the investment, market size, current success, competition, scaling options, investor testimonials as well as why your team can take the business to the next level.

Call to action

End with a clear closing statement summarising your offering. Outline the future of your company and the investor’s potential contribution to it.

NB. The script for your video will need to be approved by a member of Seedrs’ investment team ahead of filming, to ensure everything is within our guidelines so that we can approve it as a financial promotion.

Step 7: Create a marketing and PR strategy

Considering who you want to communicate with is key when crowdfunding on Seedrs. Marketing and PR around your campaign can really help build awareness and traction. Ask for an intro to the Seedrs PR & marketing team for best practice and advice.

Before sending any communications, draft an outreach list to manage when you are speaking to potential investors in an orderly manner, avoiding any repeated conversations or missed opportunities.

Outreach categories include:

Family

These people are highly likely to invest in your business, but are unlikely to have a Seedrs account. Ensure that your contact with them makes it clear how to sign up and invest on the platform.

Friends

This group may need to be split into smaller cohorts (close friends, acquaintances etc.) in order to tailor more specific emails to them. Similarly, you will need to instruct these recipients on how to sign up for an account.

Customers

Getting your customers or suppliers is a great way to build relationships. If they have invested in your business, it is highly likely that they will want to maintain the relationship in order for the brand to grow. You might want to discuss a pre-registration with Seedrs if you have a big community.

Previous investors

People who have already invested in your business are reliable for follow ons if you have demonstrated growth since they last invested.

VC’s and Angel investors

If you have relationships with any angel investors, then you will certainly want to create a tailored email for reach outs. If you are approaching professional investors for the first time, then you will need a professional pitch deck to send in advance of setting up a meeting.

Your extended network

This group will include people you have previously worked with, your LinkedIn network, people who work in relevant industries and other people within your email list.

Media

Getting the word out about your campaign when crowdfunding on Seedrs is really important. Spend some time looking at which journalists from newspapers and online publications write about crowdfunding and start-ups. Start engaging with them on social media and follow what they are writing so that when the time comes you can send a personalised pitch to them.

Step 8: Going live

Private campaign

Only people with the URL to your campaign will have access at this stage so it’s not public to a wider audience. This let’s you manage the launch in a controlled way. Keep the timing tight, only stay in private for 3-5 days.

When you launch your private campaign, plan to invite everyone who pre-registered their interest and the outreach lists you prepared. Getting 50 to 100 investors while in private is a great starting point. This will, ideally, generate early momentum into the campaign before you go public.

Public campaign

This is where all your hard work pays off and your campaign is visible to a wider pool of investors. You’ve already reached out out to your direct audiences, so this is when you want to use marketing and PR to drive a new audience to learn about the business opportunity.

Further reading on crowdfunding on Seedrs

• How I used Seedrs to raise money for my doorbell business
• How to use alternative business funding to make your business grow
• The equity crowdfunding market: A small business guide

The post Crowdfunding on Seedrs: A small business guide appeared first on Small Business UK.

If a business needs money to invest in itself – for say expansion, improving facilities or new equipment – it can either seek to borrow money or ask for (capital) investment in return for equity (shares). In recent years, the latter option has been facilitated by the equity crowdfunding market.

In the past start-ups and small businesses would approach specialist investors for money in exchange for equity such as Angel Investors or Venture Capital Trusts (VCTs) – think Dragons Den. However, equity crowdfunding opens up the opportunity for a broader range of people (the crowd) to invest in these types of companies.

It also changes the game; where before a small number of individuals would invest large sums of money, with equity crowdfunding larger numbers of people can invest smaller amounts – but the net result (hitting the funding target) is the same.

Useful link: – Looking for funding? Find the right finance for your business here

For businesses this is great news. Traditionally it was difficult for entrepreneurs and small or start-up businesses to access interested investors with enough money to invest in them. Generally businesses would look within their local or business sector network for investors because it was difficult to connect with anyone outside of those networks.

The equity crowdfunding platforms have changed that. By utilising new technology and the internet they provide businesses seeking investment greater visibility to a crowd of people with money to invest from across the country and in some cases professional investors as well.

For investors equity crowdfunding platforms provide a structure/platform from which they can look at businesses in which they may wish to invest, keep track of their investments and more easily access tax wrappers like Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS) that offer tax incentives that can make smaller and start-up company investing more attractive.

Generally the companies raising money from the crowd are not yet listed on a stock market, although as the sector matures this is starting to change. For instance, some AIM listed companies have been raising capital through crowdfunding.

The history of the equity crowdfunding market

Crowd investing is not a new phenomenon, you can trace its roots to the co-operative movement for instance, but today’s equity crowd investing specifically utilises technology to facilitate the connection between businesses seeking capital and investors seeking growth for the capital that they have to invest.

What is perhaps unusual about today’s equity crowdfunding, relative to other types of investment, is that its roots are firmly planted in the creative community. ArtistShare was launched in 2003, Indiegogo in 2008 and Kickstarter in 2009; all of which initially helped the creative community connect with investors.

Some of these platforms offered ‘reward share’ rather than equity in return for investment, but the principle of sourcing money from “the crowd” and using technology to do so was there.

The term ‘crowdfunding’ is believed to have come into use in 2006 – which highlights how young this industry is. The first equity crowdfunding platform in the UK was Crowdcube which launched in 2011 and the first crowdfunding platform to be regulated in the UK was Seedrs in 2012.

How did the equity crowdfunding market develop?

In the film field of dreams there’s a line ‘If you build it he will come’; change he too they and you have summarised crowdfunding’s development in the UK. As the platforms were built, so investors and businesses found them. In 2011 £1.6m was recorded as being raised across 7 deals. In 2015 NESTA recorded deal values across UK equity crowdfunding platforms as £332 million.

In 2015 15.6 per cent of all seed and venture capital investing in the UK hailed from equity crowdfunding and there was 295 per cent year-on-year growth in the same year (£332 million, compared with £84 million in 2014) according to Nesta in its pushing boundaries report 2016. Yet there is still a long way to go; 15.6 per cent is a small slice of the UKs seed and venture capital investing market for instance.

Evolving structures

Equity crowdfunding platforms are not all the same, there are a number of different fee models and structures for raising capital and platforms will offer a combination of the structures listed below:

• Lead investor: A Venture Capital investor (VC) or lead investor is needed for each funding round.
• Relationship: the platform takes an interest in the businesses raising capital on its platform and provides guidance over a period of years.
• Expert panel: a panel of experts offers analysis and guidance to investors and businesses raising money on the platform.
• Tailored crowds: there are fewer investors but the money that they have to invest is higher (usually a minimum amount is set).
• Scale: bigger crowds, but minimum investment levels are lower.
• Business set valuation: the business pitching for investment is responsible for providing its valuation. This is the most common model.
• Crowd set valuation: where the valuation of the business is set based on the interest and investment of the crowd.
• Equity stake: the platform takes an equity stake in exchange for hosting your businesses pitch. Generally there is an equity stake and an arrangement fee.
• Arrangement fee: the platform charges an arrangement fee, usually 5 per cent to 7.5 per cent of the money raised, contingent on a successful fund raising round.
• Investor profit cut: some platforms have begun to take a cut of investor profits.
• Direct ownership: shareholders are responsible for holding and administering their own shares, meaning they talk directly to the business that they are invested in.
• Nominee ownership: the platform is responsible for holding the shares for an individual, so they carry out the administration and could advocate for shareholders in certain situations.

Who are the key players in the equity crowdfunding market?

The seven key players in the UK equity crowdfunding market are:

Crowdcube

The UK’s oldest player in the equity crowdfunding market and has over 400,000 registered investors to its platform, making it one of the biggest platforms. Professional investors and venture capital firms invest alongside the crowd. They offer both a direct and nominee structure.

Further reading on raising money on Crowdcube

• Raising money on Crowdcube: A small business guide

Seedrs

One of the first regulated crowdfunding sites and like Crowdcube offers scale; it is one of the UK’s largest platforms. Professional and venture capital firms invest alongside the crowd and it has European as well as UK investors. It provides administration for investors and businesses and offers a multi-currency option.

Further reading on raising money on Seedrs

• Crowdfunding on Seedrs: A small business guide

Angels Den

As the name suggests, an Angel investor-led platform – meaning there needs to be a lead investor for every deal. Businesses looking for investments are researched and the platform claims that the selection process means only the best opportunities make it to pitch to their crowd.

Crowd for Angels

A smaller platform in the equity crowdfunding market. It also offers businesses access to their crowd of registered users and professional investors. Where it differs to the big three above is that businesses can choose share funding or bond funding (effectively a choice between investment in exchange for equity or a loan with interest and capital repayment requirements).

Invesdor

Seeks to offer businesses within the European economic area access to a crowd of investors from Europe and beyond. It is a Nordic company that has recently entered the UK’s equity crowdfunding market and is seeking to challenge the leading platforms. Like those platforms professional investors can invest alongside the crowd.

Investing Zone

Uses its reporting tools as a differentiator, with the focus on maintaining contact with your business and helping you to stay in touch with your investors after fund raising. It also offers access to the crowd and professional investors.

Syndicate Room

Another platform with the pitch ‘invest alongside the professionals’ but for businesses it offers successful fund raisers that are eligible for EIS qualifying the opportunity for additional investment from its own fund, with the potential to double up the investment.

Further reading on raising money on SyndicateRoom

• SyndicateRoom: A business guide to using the platform

Venture Founders

This platform works a little like a venture capital trust but with lower initial investment levels and fees. They have a team of professional investment managers seeking interesting deals that their crowd can invest in. The crowd can choose which business they wish to invest in, but effectively they are picking from a portfolio chosen by that team.

Also see: Crowdfunding UK small business: everything you need to know

What are the industry regulations?

The Financial Conduct Authority (FCA) applied specific regulations to the UK equity crowdfunding sector in October 2014 and, following publication in December 2016 of an interim report, the FCA is expected to update regulation for the equity crowdfunding platforms in 2017.

These regulations were focused on protecting investors from what the regulator perceives to be ‘high-risk investments’ in unlisted companies. The key impact has been on the type of investors that the platforms and the businesses pitching for investment on them can market to. They are defined as:

• Those who take regulated advice
• Those who qualify as a high net worth or sophisticated investor (i.e. investors with more than £100,000 to invest or with investments in these types of companies within the last two years)
• Or those who confirm that they will invest less than 10 per cent of their net assets in this type of security

The equity crowdfunding platforms are responsible for ensuring that investors meet the FCAs criteria.

What do you need to do to apply?

Every platform has its own criteria for application, but it is worth doing your research before you do. You will need a business plan and details of the company financials, as well as a pitch video that will be hosted on the crowdfunding platform.

However, successful fund raisers tend to go a step further than that:

There are many businesses applying so do your research: You are one of many, so you need to approach the platform in the same way that you would approach a job interview; do your research. Understand how the platform operates, what it is looking for. Know what – if any – businesses in your sector it may have worked with in the past and how they fared with their investment community. Understand what the platform will ask of you and have those materials to hand.

• Consider your marketing plan: You may be pitching on a platform but there are investors everywhere. Think about local networks. Look at opportunities to raise your companies profile and in so doing be more appealing to investors. Consider if there are media opportunities to discuss what you do in some way. Work with a local venture capital or business angel network if you can. Don’t expect the platform to do all of the work for you, think about what you can do and bring to the table as well.
• Make sure the video is slick: You have one chance to win over the platform and investors, don’t miss it due to shoddy presentation. Yes your business plan needs to be attractive, but whoever is presenting also needs to appeal to viewers. It is also worth investing in a designer to make sure that your business plan document and one pager read well and look good.
• Consider the needs of the investor: the platforms need strong business proposals and pitches for their crowd of investors, but they are serving those investors – so what is in it for them? If you were seeking to invest in a company what would you want to know? .Consider returns, what is happening in the rest of the sector and market and why you are the best bet. What has come before – for instance if you follow on the heels of a well-known failure why should investors believe that you are any different? How long should they expect to wait before they see returns? What will you be doing to get them?

And finally – what is in it for my business, apart from capital?

What can be overlooked when considering if the equity crowdfunding market is right for your business is the value, other than the capital that they invest, of the ‘crowd’ itself. Crowdfund investors often become committed advocates for the businesses that they invest in, they want to see your business succeed. Many will have skills or contacts that are useful to your business. Think of these potential investors as a network of advocates and influencers, as well as providers of capital and consider what, if anything, they could do to help your business.

This article was provided by BusinessAgent.com.

Further reading on the equity crowdfunding market

• How to use alternative business funding to help your business grow

The post The equity crowdfunding market: A small business guide appeared first on Small Business UK.

Should businesses account for VAT on their crowdfunding? Despite this question being a hot topic of conversation in recent years, the relationship between VAT and crowdfunding is still very much a grey area that causes confusion for many people.

Crowdfunding has been around in some way, shape or form for centuries, from Alexander Pope taking advance subscriptions for translating Homer’s Iliad from Greek into English, to Joseph Pulitzer launching a fundraising campaign in the New York World to pay for a plinth for the Statue of Liberty.

These days, crowdfunding outside of the charity sector can be tracked back to 1997, when fans of the British band, Marillion, raised $60,000 to enable it to tour the US.

Taking inspiration from their fans, the band then funded their 2001 album, Anoraknophobia, by asking people to buy it before it had been recorded. All of this activity was carried out through internet campaigns, providing widespread inspiration and laying the foundations for many of the crowdfunding platforms that are available today.

Crowdfunding in the 21st century

As the internet has grown in popularity, so too has modern crowdfunding. According to The World Bank, crowdfunding will reach $90 billion by 2020, a level that could be seen this year, if annual growth continues.

Crowdfunding is used for a wide variety of fund-raising activities, ranging from new business start-ups and property investing, to album, film and election campaign-funding (which currently includes funding for a fish finger to stand against Liberal Democrat leader, Tim Farron, in the General Election in June).

So, what does this all have to do with VAT?

In order to explain the connection between crowdfunding and VAT, we need to focus on the type of crowdfunding. There are two main types of crowdfunding available.

Type 1: Non-financial return

Donation-based

In these circumstances, contributors donate without being given anything in return because their payments are donations.

This activity sits outside the scope of VAT.

Reward-based

In return for funding, contributors are rewarded with non-financial compensation, such as goods or services, which could include a copy of the product that’s being promoted, access to a private concert, or even, a walk-on part in a film.

Rewards may differ, depending upon the amount of money that’s being contributed. Where goods are concerned, it’s important to note that distance selling thresholds also need to be considered. Conversely, it’s also possible for rewards to be more of a symbolic value and not reflect the level of contribution that’s been made.

This may have an effect on whether VAT should be accounted for.

Type 2: Financial return

Crowd investing

This is where contributors expect financial remuneration in exchange for their investment. This could take the form of income from future earnings; and/or investment into securities, such as shares or bonds issued by the person/company who launched the funding campaign.

Such investing is likely to be exempt from VAT by virtue of Article 135 (1) of the VAT Directive however, any shares in the IP or royalty payments received by investors are subject to VAT.

Crowd lending

Here, contributors act as lenders and the person/company who set up the campaign are the borrowers.

Recipients are expected to repay the money to the contributors, often at a fixed interest rate. Some debt crowdfunding is interest-free or carries low interest rates, particularly when lending to social enterprises is involved, while others set the rate at a commercial level.

This form of lending is exempt from VAT, again by virtue of Article 135 (1) of the VAT Directive.

So, in relation to the question that was posed at the very start of this article, ‘Should businesses account for VAT on their crowdfunding?’, the answer very much depends on the circumstances at hand and the type of crowdfunding that’s taking place.

Broadly speaking, there are elements of the funding that, by law, sit outside the scope of or are exempt from VAT however, there are certain situations when VAT should be factored in, such as rewards-based funding, IP shares and royalty payments.

As new and exciting an area of finance crowdfunding might be, it’s an area that raises a range of VAT-related queries. My advice to potential crowdfunders would be to take the time to understand the many VAT-related issues that exist before embarking on the process – it’ll ensure there’s no room for any confusion plus, you’ll reduce the risk of receiving any sudden penalty surprises from HMRC too.

Gavin Barker is the UK head of VAT at Ayming.

Further reading on crowdfunding VAT

• Do I have to charge VAT?

The post Applying VAT in the world of crowdfunding appeared first on Small Business UK.