During Money Month on The Right Stripes we will be hearing from a number of well-known small business funders, from peer to peer lenders, government-run schemes, grants and crowdfunders, to give you the inside scoop on raising funds for your start up.
Crowdfunding sites give small businesses the chance to raise funding from ordinary people, Dragons’ Den-style, and is now seen as a vital fundraising tool. Crowdfunding is essentially where lots of people invest or donate small sums to help a project, business, charity or social enterprise get off the ground or grow. Among these new crowdfunding sites is Crowdcube.
We caught up with Luke Lang, Co-founder and CMO of Crowdcube, to get his top tips on how to use crowdfunding to secure finance for your business.
Who are Crowdcube?
Crowdcube is on online platform that enables ordinary people to invest alongside professional investors in start-up, early stage and growth businesses through equity, debt and investment fund options. Darren Westlake and I launched Crowdcube in 2011, since then we’ve amassed a crowd of over 100,000 people who have invested more than £40m, with 150 British businesses being funded as a result. Some of the more well-known brands that have used Crowdcube to raise finance include the Eden Project, which recently raised £1.5m in less than 24 hours through a Crowdcube Mini-Bond, Hugh Fearnley-Whittingstall’s River Cottage, which raised £1m in 36 hours, as well as Sir Stelios’ latest venture, easyProperty, which raised over £1.4m.
What is crowdfunding and who uses it?
On Crowdcube businesses can pitch their idea to a wider audience, with everyone in the crowd having the potential to be an ‘armchair dragon’ and invest anything from £10 to over £100,000. More and more businesses, from start-ups to established brands, are turning to crowdfunding to raise capital, by-passing traditional sources of finance like banks and angels. Crowdcube enables businesses to take back control of raising the finance they need to start or expand their business, with the added benefit of being backed by the crowd.
How much capital can one typically expect to raise?
Businesses listed on Crowdcube set their own investment target, which is dependent on how much they need to raise to establish or grow the business. We’ve help fund business who are looking to raise tens of thousands, right through to those looking to raise millions. If you are looking to raise funds by crowdfunding it’s important not to put people off by overvaluing your business, so set yourself an achievable target which takes into account any investment you may already have lined up.
What sort of businesses raise the most amount of money?
As each business sets its own investment target it varies depending on how much is needed to establish or grow the business. We’ve helped a range of business raise funds, from start-ups looking to raise tens of thousands, to established businesses such as the Eden Project and River Cottage, who have raised millions on Crowdcube in just a matter of hours. The key is having a truly different business and communicating it clearly.
If you don’t reach your target, do you get to keep the investment raised?
Unfortunately not. If a business doesn’t reach its investment target it could be an indicator that investors have not bought in to the investment opportunity. With this in mind, when looking to raise finance it’s important to clearly outline to potential investors who and what they are investing in, as well as the market potential and how they could see a return on their investment. Above all, businesses need to ensure they have a crystal clear proposition which is supported by a well-written business plan with financial forecasts that add-up.
What is the application process?
To be approved to list your business on Crowdcube you will need to provide a business plan, financial forecasts for the next three years and a compelling video pitch that clearly explains the investment proposition. Investors also want to be inspired and excited, so show your enthusiasm in both in your pitch and your video. There are three key elements to get across in your pitch – your idea, how it could impact the market and how investors could see a return on their investment.
How much equity does one typically need to offer in return for funding?
The amount of equity offers varies from business to business. It largely depends on the company valuation and how much the business is looking to raise. Essentially, the crowd will determine if enough equity is being offered, if they feel the investment opportunity is attractive you’ll see the investments start to come in.
If you are offering ‘perks’ in return for investment – what sort of perks are most attractive? What works and what doesn’t?
Perks are a great added bonus but it’s not the deciding factor for the majority of investors, most would prefer reassurance that they could see a return on their investment. Not all businesses are able to offer perks or rewards for investing but of course if you can, it’s an added bonus for investors.
Do you have to create your own social media campaign around your pitch to drive people and interest? What if you don’t have a large network of contacts to help you get the ball rolling?
Crowdcube has a crowd of over 100,000 investors looking for investment opportunities, so whilst having your own network of potential investors will help, it’s not always essential. Reaching the first 10 per cent of your target is always the hardest part, so it’s important to promote your pitch to family, friends, customers, suppliers and anyone else who engages with your business. When your pitch is live, it’s important to continue promoting it and keep investors and the people who are viewing your pitch engaged by providing regular updates about any business developments.
How much detail should your pitch contain? Do you need to detail what the funds will be used for?
When it comes to writing your pitch, quality is more important than quantity, so ensure your pitch is clear, concise and contains all the pertinent information. Any pitch for investment should include a crystal clear proposition outlining why someone should invest, how you plan to use the money raised, along with an outline of the market opportunity and essentially, how investors could see a return; all of which needs to be backed up with a sound business plan and financial forecasts. Whilst that’s all important, don’t be afraid to reflect the passion and excitement you have for your business in the pitch – you can’t expect potential investors to get excited if you’re not.
Should you have an advisor to help you through the process, as I believe there is a lot of preparation that needs to go into the pitch?
We’ve helped more businesses raise finance than any other crowdfunding platform in the UK, so we’re well placed to help businesses through the process of raising finance through crowdfunding. So whilst there is no need for an advisor to help you through the process, if additional support is required for certain elements of the pitch, such as pitch promotion or video, we can recommend partners who can help.
What are the common mistakes that people make with their pitches?
We see lot of pitches from businesses seeking investment, those that don’t make it onto Crowdcube are usually the ones which haven’t clearly defined the business proposition or how investors could see a return. Read our top tips to help you write a killer pitch.
What are your crowdfunding top tips?
When pitching for investment you need to have a clear proposition which outlines what makes your business unique, what the strategy for growth is and therefore why people should invest. People are more likely to invest in a business if the proposition is something they are already passionate about or if it’s just too interesting or compelling to ignore. So if your business ticks one or both of those boxes you’re off to a good start. Investors also want to know the people behind the business, so don’t be afraid to show your passion and excitement for your business in the pitch. If you’re seeking finance it’s important to be mindful that no investor wants to take on more risk than they have to, so the more tangible developments you can demonstrate, such as sales or contract wins, the better. Lastly and most importantly, investors will want to know about the potential for return on their investment, so you need to outline how and when this will happen.
As the world’s first and most successful investment crowdfunding platform, Crowdcube enables entrepreneurs to bypass the traditional business angel, venture capital or bank finance routes, giving them more control and access to more investors. For investors, Crowdcube provides them with a way to cherry-pick a stake in an innovative business that traditionally would have been restricted to corporate investors. In addition, they can now benefit from a fixed return per annum by lending money to more established companies offering a mini-bond on Crowdcube.
Since February 2011, more than 100,000 savvy investors have registered with Crowdcube, helping to raise over £40 million of equity finance for 152 UK business pitches.Investing involves risk and should be done only as part of a diversified portfolio. Investing equity in start-ups and early stage businesses involves risks, including illiquidity, lack of dividends, loss of investment and dilution. Mini-bonds can be unsecured, non-convertible and non-transferable. Crowdcube is targeted exclusively at investors who are sufficiently sophisticated to understand these risks and make their own investment decisions. Crowdcube is authorised and regulated by the Financial Conduct Authority (No. 572026).
You may also like our other Crowdfunding features