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Is crowdfunding right for my business?

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Whether you’re all ready to rock’n’roll with crowdfunding because it feels like the natural fit for your business (and it works with your overall investment strategy!), or perhaps you’re slightly more skeptical about the whole process, convinced that crowdfunding is purely for B2C businesses; in this article, we explore whether crowdfunding might be right for you.

Side note – this article isn’t about convincing you that crowdfunding is right for you, or indeed for everyone. This is about showing you the options and debunking a few myths to help you make an informed decision.

Before we get into the detail of whether crowdfunding is right for your business, it’s worth taking a little trip down memory lane and understanding a potted history of the evolution of crowdfunding.

Equity (and debt) crowdfunding became a plausible alternative source of funding for small businesses after the recession in the late 2000s resulted in more traditional funding sources, such as bank debt, drying up. It was primarily used by consumer-focused brands, who could tap into their customers’ loyalty, to bankroll their operations so as to be able to continue trading. The industry started formalising with the launch of a number of crowdfunding sites who specialised in standardising and regulating the crowdfunding process. This created a snowball effect whereby brand customers would sign up to a crowdfund site to invest in their favourite brand, and stay on to discover and invest in new brands.

Not long after, investors quickly cottoned on to the fact that crowdfunding platforms were an efficient way of accessing a variety of deal-flow, particularly for early-stage EIS-qualifying opportunities, which they could not access elsewhere. This success was being witnessed by investors abroad and so UK platforms started becoming more popular with international investors, helping grow both the demand and supply sides of these platforms.

By then, crowdfunding switched from being a funding of last resort, or of fledgling businesses just starting out, to an alternative funding source sought after by companies who wanted to tag a crowdfund campaign onto their larger institution-led fundraisers, such Thread, Mr & Mrs Smith, and Monzo. The large pool of investors in these platforms meant larger potential capital at stake and therefore a wider range of investment opportunities, including B2B, cleantech, healthtech, started to mushroom in crowdfunding sites.

Today, crowdfunding is no longer just for small businesses. In fact, it is increasingly the choice for growth businesses looking to open up their funding rounds to the crowd as an effective and efficient way of bringing angels, their community and customers in as investors alongside institutions.

And yet, crowdfunding is not right for all businesses, so it is important for founders to make an educated decision as to whether to raise investment through this method. Let’s look at some questions for you to consider to help you work through whether or not crowdfunding might be for you:

Can I secure a significant lead investment amount prior to launching a crowdfunding campaign?

In order to raise investment from the crowd, you need to be able to launch a campaign having already raised a good proportion of your minimum target (more on that here > link to how much you need to raise before crowdfunding); this can be from angel investors, friends and family, institutional investors, or a combination of these. The reason for this is that having a cornerstone investment amount signals appetite for your deal; if you do not have it, crowd investors are likely to look at your campaign as a last resort to raise investment rather than what it should be – a top-up.

It’s worth noting that most crowdfunding platforms won’t even allow your campaign to “go live” (i.e. public facing) if you do not have a good cornerstone investment in place.

Do I have a community of customers or professional network I can call on to form my crowd?

The most successful campaigns, the ones who raise money in record time and/or amounts, have a network to tap into for investment. This can be your customers, your business partners/suppliers, or your professional network.

Do I have the resources and bandwidth available to run a successful campaign?

Crowdfunding may be a standardised process nowadays, but do not underestimate the work involved to plan and launch a successful campaign.

It may seem like a marketing campaign, and indeed companies who launch successful campaigns mobilise their marketing team to execute some parts of it, but a crowdfunding campaign is ultimately an investment campaign. The founding team and senior management will need to dedicate a significant amount of their time every day for 3-5 months, just as they would for any other type of investment raise.

Getting the help from experienced companies (link to should I hire a crowdfunding agency), can help with a significant chunk of the heavy lifting (campaign preparation and management, content creation, etc), but it is ultimately the founders who are raising the investment so it is imperative that they are heavily involved in the process.

Do I have enough time to plan and execute a successful campaign?

Give yourself minimum 3 months to plan and run a campaign. Just as with any type of fundraising event, it takes time to prepare materials, talk to investors, go through due diligence and finalise the legal and tax work. Crowdfunding is no different.

Common crowdfunding myths:

It’s only for B2C businesses and breweries

Whilst consumer brands and breweries continue to perform well on crowdfunding platforms, we’re increasingly seeing B2B businesses executing extremely successful crowdfunding campaigns including Celtic Renewables and Equipsme.

Crowdfunding is where you go if you can’t raise money elsewhere

As we’ve already shared, crowdfunding is now seen as a brilliant way to engage customers, foster loyalty and democratise large-scale, later-stage growth rounds of investment with companies tacking on a crowdfund to their Series A or Series B rounds.

It’s easy

Nothing is easy. Sorry!

In short, crowdfunding might be right for you if:

  • You have an engaging brand story, purpose and vision for your business that other people might want to get behind and be part of the cause.
  • You have a community of customers you’d like to offer an equity share in your business to foster loyalty
  • You want to build your community and use your crowdfunding campaign to raise brand awareness at the same time as raising money
  • You’ve already raised a large amount of money from angel investors and/or institutions and you want to top-up from the crowd whilst also building your community or allowing customers to invest
  • You want to efficiently pull lots of smaller-ticket investors into your business through a regulated platform and a nominee structure