Is crowdfunding just about the money?
19 September 2016
Over the past couple of months we've been focusing a lot on fundraising for fast growth companies. Our Twitter chat in May prompted a lot of interesting debate about transitioning between different types of funding and in June I participated in a panel for the ELITE group of the London Stock Exchange at the International Festival of Business in Liverpool, discussing what types of funding are appropriate for companies along each stage of their journey. This Thursday I'm speaking about crowdfunding and that prompted me to pull together thoughts on the topic.
There's an awful lot of thought and comment about this area available on the Internet and that access to information means that companies can do a lot of background reading themselves. But there's also a constantly changing landscape as new funding models disrupt the traditional.
So what were the key points from our discussions?
Firstly for very early startups, the friends and family funding and personal capital is still often the starting point. Once the financial needs exceed this then the entrepreneurs we spoke to tend to look one of three ways for equity funding - Business Angels, Institutional Seed Funds or crowdfunding.
The advantage of taking on a business Angel is that you are buying into the interest and the expertise of the individual, but for that same reason, businesses need to make sure that they are making the right choice of Angel - it could be a lengthy relationship. Institutional funds and sometimes family offices also offer that expertise, but with a slightly different take on the relationship.
Crowdfunding can be a most fruitful route to raising finance, particularly in the B2C space - the best crowdfunding camps gains create personal engagement with customers and a great marketing campaign, but businesses shouldn't underestimate the time and energy needed for a successful campaign, and it can be important to secure a significant base of promised funds before even embarking on them. As the crowdfunding model matures it will be interesting to see how it changes - do crowdfunders appreciate they are in for the long term with these investments and will we see the development of platforms to create a market for exiting these equities?
Alongside all of this are new developments in the debt space, with venture debt becoming more commonplace, peer to peer lending generating significant transactional value and new platforms such as creating marketplaces for monetising different types of assets.
For many early stage companies the choice between debt or equity may depend on whether the funding is needed for working capital, significant development or expansion.
Over the next couple of months we're going to get the view from the founders themselves about the current landscape, but as one put it - the money is out there for good ideas - if you're not able to access it may be your idea that's at fault.
Crowdfunding Workshop: Successful crowdfunding for busy entrepreneurs
Thursday 22 September