In the last few years raising finance for a small business has become democratised. Rather than being restricted to banks and wealthy private investors, small business owners can now go to the ‘crowd’ in search of funding.
So has crowdfunding made raising money any easier? That’s debatable. But it has certainly made the whole process more interesting. Rather than trying to persuade a small number of people to part with a large sum of money, the challenge with crowdfunding is to try to persuade lots of people to part with small amounts of money.
There are a few types of finance that can be raised through crowdfunding. There is debt financing where the crowd provide loans. There is equity crowdfunding where the finance you seek is offered in return for shares in your company. There is also what is called donation/reward crowdfunding. This is where the crowdfunders receive some kind of intangible reward in return for putting money into a venture.
So if you’ve been turned down by an angel investor or a bank and are now considering crowdfunding as an option here are some tips.
- Select your crowdfunding platform carefully. Use the CrowdingIn (www.crowdingin.com) website to help you choose.
- Be aware that there are two crowds. There is the crowd you are pitching to, but there is also the crowd that you are pitching alongside. Crowdfunding has become very popular and there are literally thousands of other businesses like you seeking crowdfunding. So you’ve got to stand out from that crowd in order to attract the attention of the crowd you are pitching to.
- Sell yourself and your team. Be as personable and as charismatic as you can. Your potential crowd investors will want to see your enthusiasm and your passion shine through.
- Do your research. Do an in-depth study as regards your idea and the industry. You need to be able to answer any question that comes up from the crowd.
- Don’t try to impress with jargon. Explain your business idea in simple and understandable ways.
- Investors will be impressed if you have already raised some money. So that might have come from yourself or from your friends and family. Wherever it comes from, the fact that other people have backed the idea with their own money, go some way to reassuring and impressing crowd investors.
- Be aware that this whole process will take up a lot of your time. Be ready to answer questions promptly and to be on-call. Potential investors won’t be impressed if they have to wait weeks for a reply. They will move onto someone else.
- Be honest. Don’t hype your idea and don’t undersell it either. Do show it in its best light, however.
And finally, good luck. Even if you don’t raise the money you are seeking, the level of analysis and scrutiny that the crowdfunding process will put you through will stand you in good stead. You’ll be clearer on your business idea and clarity is always a good thing in business.