Seven Tips For A Successful Crowdfunding Campaign
By David Prosser, Forbes 14 January 2019
With the peer-to-peer finance sector now growing at a rate of 35 per cent a year, increasing numbers of UK-based small and medium-sized enterprises are turning to crowdfunding as a viable source of investment capital. But if you’re thinking about raising money in this way during 2019, don’t assume that the platforms’ continuing expansion means you’re guaranteed to achieve your ambitions. Successful pitches require hard work – both to secure a platform listing in the first place and to persuade lenders and investors to back you with their money. Here’s seven tips for making crowdfunding work.
1. Pick the right platform
Start with the basics. Are you planning to borrow money from investors or ask them to buy an equity stake in your business? The former option may suit more developed companies with reliable cash flows – you’ll need to be able to make regular repayments, including interest. Equity fundraisings, on the other hand, ask investors to buy into future potential with no immediate commitment to pay them a return on their money. But you will be giving up a chunk of your business, possibly at a lowly valuation if the company is young. For more details on which platforms offer what, see the UK Crowdfunding Association.
2. Set out your business plan
Going down the crowdfunding route is not an excuse for a poor-quality business plan. You’ll need a properly constructed plan to get your business listed on a platform – and investors will want to see it too. Your plan should include realistic forecasts for sales and expenses, as well as detail of how you see the company growing. You will also need to explain exactly what you’re raising money for. If in doubt, ask platforms for examples of other people’s business plans so you can see what’s required.
3. Get the pitch right
Your pitch to potential investors is crucial – it represents your one chance to convince them to hand over their money to people they don’t know from Adam. Spend as much time as possible as you can on the pitch, taking advice and feedback wherever it is available. Look at successful pitches on your platform of choice and learn the lessons of these examples. Aim to build a story – where your business has come from, where it’s going, and how investors can share in its success along the way. Video is particularly powerful.
4. Spice up your offer with tax breaks
Check to see whether your equity-based crowdfunding pitch qualifies investors for the seed enterprise investment scheme (SEIS) – if so, make sure you register the business as qualifying. The SEIS and its big brother scheme the EIS offer incredibly valuable tax perks that substantially reduce the risk of investing in a small company. Your investors will be much more relaxed about their starting capital if you can offer SEIS perks.