How can I use crowdsourcing to finance my startup?
Companies may generate money via crowdsourcing, or equity crowdfunding, by selling their shares on a platform governed by the FCA. Private investors might put as little as £10 into the business or concept.
How many crowdfunding sites exist in the United Kingdom?
In the UK, there are two primary platforms: Seedrs and Crowdcube, and several additional platforms that provide variations of the same thing.
In addition to the UK sites, two US-based reward systems, Kickstarter and Indiegogo, also accept UK projects. They don’t work with equity. The fundamental benefit of utilizing these platforms is that they provide startups that could interest worldwide audiences access to a bigger pool of possible investors. Of the two, Kickstarter is more well-known in the UK. It has been open to pitches from UK companies since 2012 and, by 2016, has received more than £1 million in financing from British-only sources.
Platforms for crowdfunding throughout the world
Details on crowdfunding websites in the UK and other countries are provided below.
| Overseas Platforms Accepting UK Projects | Website | Headquarters |
|---|---|---|
| Companisto | companisto.com | Berlin, Germany |
| Eureeca | eureeca.com | Dubai, UAE |
How common is crowdsourcing in the UK?
Beginning in 2011, equity crowdfunding in the UK has developed to the point that some critics now refer to it as mainstream. Although I believe this to be overstated, the following facts may provide you with some insight:
Which of the two crowdsourcing sites, CrowdCube or Seedrs, is the best?
Equine for courses Compared to Seedrs, Crowdcube is bigger and has been around longer. Although, in my opinion, even this is not good enough, Seedrs does provide an alternative package based on a nominee structure and conduct more rigorous due diligence. If your business wants the broadest coverage, Crowdcube could be a good alternative, while Seedrs might be a better fit if you don’t want to deal with hundreds of individual shareholders. Only subsequent and bigger rounds, including VCs and Angels, are conducted in the Syndicate Room, which no longer does business with the general public.
How much will I have to spend on a crowdfunding campaign?
You may spend as much money as you’d like, but one of the main benefits of this financing for companies is that it is inexpensive. Only successful campaigns will result in fees from the platforms, ranging from 4% to 8% of the total amount collected. The only upfront expense is creating the campaign, which will cost roughly $5,000 for the video and pitch deck. Of course, time is lost when you are not fully focused on managing the firm. You may hire a specialized consultant to aid in the campaign’s success, but most of that expense will be incurred after the campaign is successful.
How do crowdfunding websites generate revenue?
The platforms can support themselves by taking a commission on the money earned during a successful campaign. If the campaign falls short of its goal, no money is exchanged, and the investments are worthless. In addition, Seedrs charges a retainer fee and an uplift after the campaign if the business succeeds in being sold.
“A campaign finds it extremely difficult to accomplish” if it doesn’t get over 30% of its money initially.
How can I get ready for crowdsourcing?
Investors want to know what their money will be spent on and how this will move the firm ahead to what may be a successful exit and an ROI for them. Therefore businesses need to be very explicit about why they seek the money. Therefore, you need a well-thought-out strategy, a timeline for when and where the money will be spent, and realistic estimates.
When it’s ready, you apply it to the platform of your choosing.
It is important to keep in mind that their online application forms are essentially useless. Therefore you should submit one while simultaneously sending a more thorough application by email.
The 30% guideline must be understood by business owners as well. According to research, it is extremely difficult for a campaign to succeed if it does not get over 30% of its money initially. The platforms now demand that you have 30% to 50% of your campaign preloaded before they deploy it to their audience. When your connections can contribute, the campaign will often begin in private mode, bringing your total up to 30% and above.
Equity crowdfunding should generally be utilized to link you with your consumer base for support rather than depending on the platforms to provide investors.
What should my crowdfunding pitch contain?
You’ll need a three-minute video in addition to a business plan and pitch deck that is customized for the sort of investment.
The pitch must provide a compelling tale with a plausible conclusion. Using a pitch deck you sent to your neighbourhood angel network is useless. To captivate the audience during equity crowdfunding, a new strategy is needed. For this reason, many companies use ECF (equity crowdfunding) advisors.
How long should a campaign for crowd financing last?
You’ll typically get between 30 and 60 days live on most platforms. However, preparing the pitch and putting it through the platform’s due diligence requirements might take up to two months. As a minimum, we advise allowing three months. Platforms often provide an extension if your time limit expires when your campaign is nearly finished. After all, they want to see you succeed just as much as you do.
Who engages in crowdsourcing?
Equity crowdfunding is available to all limited companies. Due to the restrictions on S/EIS tax reliefs for investors, it is most suitable for young enterprises (those less than seven years old). Additionally, it is only appropriate for a firm that understands how it will exit to provide an ROI to investors.
How many successful crowdsourcing efforts have there been?
We don’t know the precise number, and much of the data is polluted with false findings. In our database, there are more than 1,200 supported firms. It’s fair to assume that the numbers are rising yearly and that more people are now aware of this source of money. Unfortunately, a large portion of that fame comes from incorrect sources.
Why do some projects for crowdfunding fail?
There may be 20 to 30 active campaigns on the bigger sites. Approximately 60% of these will be unsuccessful. Failure may have many causes, but these are the most typical ones:
- A poor idea and presentation
- Poor or non-scalable ideas
- Failure to raise 20% to 30% of the necessary funds before commencing Overvaluation
- Selecting the incorrect platform for your company
Does crowdsourcing include a pyramid scheme?
No.
In the UK, is crowdfunding regulated?
Yes. The Financial Conduct Authority is in charge of overseeing equity crowdfunding in the UK (FCA). The risks associated with investing in ECF are quite high, and until the firm is sold or becomes public, the shares you purchase won’t be liquid. A relatively small number of people have organized private share transactions. There isn’t a trustworthy secondary market at the moment. You will depend on the tax savings you received while investing and requesting loss relief since any losses you could incur are not covered by the government’s compensation program.
What benefits does crowdfunding provide investors?
Crowdfunding for equity enables investors to become engaged in startup companies. They will invest with the hope of receiving a return on their investment later, but they also have the option to contribute modest sums only for the benefits being given. Small investors often get their money back via tax reductions and benefits. Additionally, reputable businesses will work to include all investors in the development of the business, making the experience enjoyable in and of itself.
Where can I go for help if I’m an investor?
You may go to the ECF.Buzz. The Crowd Investors Network is called Buzz. Investors will have all the data and resources they need to make educated choices. It offers a database of all the companies that have been financed in this manner since 2011, as well as a forum where investors may talk about anything related to the industry without worrying about being censored. Additionally, it offers guidance for small businesses and startups that want to utilize equity crowdfunding to generate money.
