(Equity) crowdfunding has the future

Even though I am very prejudiced, crowdfunding has the future. I may not be the best way to raise money for everyone, but by the same token, neither is going to a bank right for everyone. In fact I could make a case that you should never raise debt from a bank at all other than very short term like through an overdraft or to fund debtors or something like that.

So who should look into raising money through crowdfunding. Well first of all you have to have a serious business proposition, a strong product and you have to know where you want to go with it. The crowd is intelligent, tough, well informed and discerning. There will always be people who think they can pull the wool over people’s eyes – you will be found out by the crowd. But of course you are serious, you have a good business proposition and plan, or an existing business which wants to grow. That is the first box ticked.

If you have been trading for a while, a strong debtor book, or a property without a mortgage or something like that, you might want to look at some form of debt funding. There are some excellent debt crowdfunding sites and this may be the better option than equity based crowdfunding.

The advantage of equity based crowdfunding is that you can pay your investors when you have the cash rather than being forced to pay interest whether you have the cash or not. The disadvantage is that you get shareholders who will want to see good performance. I think shareholders are great, but then I have had them all my working life. See them as partners, involve them, and they will be your biggest ambassadors.

Large companies need to raise millions (or even billions) to fund takeovers or for major expansion. Crowdfunding is unlikely  to provide the answer for them, though I am not sure what the difference is between pure crowdfunding and brokers pushing shares on the crowd.

When a company like BT needs to raise money they get big advisors in, spend millions on all kinds of stuff and then they get the money. This is all very well if you are trying to raise a few hundred million, have access to world stock markets. Then the odd million in fees makes little difference. In the real world of small business you can’t afford all these fees and lawyers charging themselves out at £500 per hour.

Then of course there are VCs, business angels or even Dragons Den. In all cases you will need to do the same preparation as you do for crowdfunding. You will need a strong product, a vision, a business plan, a marketing plan. If you think you can cut corners on any route you will be mistaken. Getting into a VC for amounts under £5 million is difficult simply because of the returns they require and their high cost base.

In the world of cost control and bootstrapping you need to keep the costs of raising money to a minimum. Equity based crowdfunding does just that.

At the moment equity based crowdfunding is really for businesses raising between £50,000 and £1 million. Talk to us if you want to raise more – there is always an opportunity to be creative.

The biggest benefit of equity based crowdfunding for the fundraiser is the fact you kill two birds with one stone – you raise money and you test the market. If you are unable to raise the money it is likely you will not sell your product either – best to know early. If you go to Dragons Den you may get one of the strong business people there, but you only get their opinion of your product.

Equity crowdfunding is not for all of us, but if it is for you, you will find it adds considerable value to your business. Contact me at dirk@crowdahead.com to talk about your plans.

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