Crowdfunding – how to sidestep the banks – help from the FSB

The Federation of Small Businesses (FSB) and the UK Crowdfunding Association (UKCFA) have come together to give small firms and start-ups advice on how to access finance through crowdfunding.

Recent FSB research showed that only 37 per cent of its members are aware of alternative finance providers, such as peer-to-peer lenders and crowdfunders. The FSB believes this type of finance can help firms access funds needed to grow, especially as many smaller and start-up businesses find it difficult to access through the high street banks.

Crowdfunding is a method of raising funds from investments from many people online, through a dedicated platform. According to NESTA, in 2011, crowdfunders raised $1.5 billion, mostly in the US, to finance over a million projects. The organisation says the UK crowdfunding market is growing.

Roger House, FSB Chairman for Kent and Medway, said:
“Most people’s first thought about crowdfunding, is pitching on a well known TV show. If they like your idea, they’ll give you some money in return for some equity in your business. While those people get to pitch in person and answer any questions, crowdfunding means pitching online, so getting it right is more important than ever if you’re going to succeed in getting finance.”

“The FSB has been an advocate of alternative sources of finance for some time. We believe more people will look at crowdfunding as an investment opportunity as investors can take advantage of tax reliefs if they invest in start-up and early stage businesses.”

The top tips for getting your business crowdfunded are:

  1. Proper preparation prevents poor performance: Just with trying to get a bank loan, having a clear business plan will demonstrate the business’s potential to the crowd. It will help give persuasive answers to the crowd and show them you’ve done your homework and researched the market and competitors.
  2. Make your pitch compelling: Keep the pitch simple and avoid using jargon. This will help potential investors understand who and what they are backing. Consider using video rather than just a written pitch.
  3. Market potential, the entrepreneurs and the idea: Investors will want to see you have a good idea that will give them a good return, but also that you have a team that will deliver the end product.
  4. Promote you and your venture today: Begin warming up the crowd with the idea so they are eager to invest when the pitch goes live.
  5. Be realistic: Don’t be overly ambitious with the funding target and don’t over value the business as this can put the crowd off. Set realistic targets which you can back up when the crowd ask questions.

Julia Groves, Chair of UK Crowdfunding Association, said:
“Crowdfunding in its many guises is already filling the gap left by the retail banks, and has to date channelled more than £1 billion of money from the UK public into the real economy.”

“Whether you are a very new business raising seed equity to get started, or a more established businesses seeking a loan to grow or diversify, there are opportunities to bypass the banks and raise this money directly from your customers, neighbours and the general public. So you get not just financial backing but the backing of the crowd.”

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