Crowdfunding has growing profile right now as a source of funding for startups and it's easy to see why. It is quick to access and it generally offers a lower cost of capital compared to unsecured lending from banks and other finance houses.
There are two main types of crowdfunding for business: debt crowdfunding and equity crowdfunding. So what's the difference?
It's worth emphasising that for businesses debt crowdfunding is the most commonly targeted option for a fund-raise, attracting the most interest from investors because the return is quantifiable.
Under the arrangement, investors receive their money back with interest, with the rate that's set being determined by a range of factors, including the risk profile of the business and market demand.
For any crowdfunding there are also two other essentials to remember. Companies will need two years of filed accounts, and a great story that the wider world can potentially believe in, because it's not just about the numbers stacking up when it comes to attracting lots of investors.
Plus any entrepreneur will need to think about the risks attached to crowdfunding even once the money raised.
You cannot write off a crowdfunded debt - once it is on the books it will need to be repaid. So understand that it's also a very public kind of debt, which matters when it comes to building and protecting a company and its reputation.
It incentivised investors by offering lifetime discounts on its chocolate, from a 10% discount for a £500 investment right up to a £25% discount for those investing £5,000 or £10,000.
Doisy & Dam's success with the fund-raising rested on its growth trajectory since its 2013 launch as much as on its well-targeted incentives. It expects to be stocked in 1,000 on-brand locations by the end of 2016, and to make a push into supermarkets towards the end of this year or in early 2017.
Exports are planned for 2017 onwards, while its target for new stockists (excluding multiples) in 2016 is five per week.
The business, which was and is London's first incubator programme to run on a double-decker bus, attracted 129 investors to its pitch in return for a combined share of 15.95% of equity.
Rishi Chowdhury, one of the co-founders of IncuBus, said the appeal of crowdfunding was twofold.
'For IncuBus, crowdfunding offered a funding route when the business was at an early stage, and it also gave us exposure when promoting the campaign. Raising like this has a community feel to it, as well. The hundreds of people backing the campaign become advocates who can share our message. And it also gave us a wealth of knowledge and potential connections we can tap into.'
The successful raise on Seedrs contrasted with an earlier unsuccessful attempt to raise funding on the crowdfunding site Indiegogo.
So what went wrong with the earlier fund-raise? The biggest issue, says Chowdhury, was that the business didn't prepare well enough.
'We came up with the idea, got excited and put it on Indiegogo, expecting everyone else to feel the same way. They didn't. The second issue that we faced, and that would maybe still have faced even with more preparation, was that reward-based crowdfunding didn't suit our service. We had very few rewards of value we could offer.'
When Chowdhury and co tried again with Seedrs, the approach was wildly different, he says.
'The second time around we got everything right. We planned two months ahead of our go-live date and we made sure we had family-and-friends investment on day one. We also made sure we lined up investors ahead of time to add to the campaign when we needed it, keeping momentum up, and made sure that we had press and social media campaigns ready for each stage of the campaign.
'All in all it was a well-oiled machine!'
Have you ever run a successful crowdfunding round? How did it go?
There are two main types of crowdfunding for business: debt crowdfunding and equity crowdfunding. So what's the difference?
Debt crowdfunding
With debt crowdfunding investors receive their money back with interest. Also called peer-to-peer lending, the returns are financial but investors also have the benefit of having contributed to the success of an idea they believe in.Equity crowdfunding
Equity crowdfunding sees individuals invest in an opportunity in exchange for an equity stake. In short, it means the money invested is exchanged for a shares in the business, project or venture. As with most other types of shares, if the project or business is successful the value of the shares goes up; if not, the value falls.It's worth emphasising that for businesses debt crowdfunding is the most commonly targeted option for a fund-raise, attracting the most interest from investors because the return is quantifiable.
Under the arrangement, investors receive their money back with interest, with the rate that's set being determined by a range of factors, including the risk profile of the business and market demand.
For any crowdfunding there are also two other essentials to remember. Companies will need two years of filed accounts, and a great story that the wider world can potentially believe in, because it's not just about the numbers stacking up when it comes to attracting lots of investors.
Plus any entrepreneur will need to think about the risks attached to crowdfunding even once the money raised.
You cannot write off a crowdfunded debt - once it is on the books it will need to be repaid. So understand that it's also a very public kind of debt, which matters when it comes to building and protecting a company and its reputation.
1. Crowdfunding story: Doisy & Dam
Doisy & Dam, which makes nutrient-dense chocolate bars, took to equity crowdfunding platform Crowdcube in March to raise £150,000 for working capital and to fund a move to a larger production facility. It reached its target inside two days, ultimately raising £220,000 from 80 investors in return for about 12% of combined equity in the business.It incentivised investors by offering lifetime discounts on its chocolate, from a 10% discount for a £500 investment right up to a £25% discount for those investing £5,000 or £10,000.
Doisy & Dam's success with the fund-raising rested on its growth trajectory since its 2013 launch as much as on its well-targeted incentives. It expects to be stocked in 1,000 on-brand locations by the end of 2016, and to make a push into supermarkets towards the end of this year or in early 2017.
Exports are planned for 2017 onwards, while its target for new stockists (excluding multiples) in 2016 is five per week.
2. Crowdfunding story: IncuBus Ventures
In 2014 IncuBus Ventures successfully raised £53,770 through equity-based crowdfunding platform Seedrs.The business, which was and is London's first incubator programme to run on a double-decker bus, attracted 129 investors to its pitch in return for a combined share of 15.95% of equity.
Rishi Chowdhury, one of the co-founders of IncuBus, said the appeal of crowdfunding was twofold.
'For IncuBus, crowdfunding offered a funding route when the business was at an early stage, and it also gave us exposure when promoting the campaign. Raising like this has a community feel to it, as well. The hundreds of people backing the campaign become advocates who can share our message. And it also gave us a wealth of knowledge and potential connections we can tap into.'
The successful raise on Seedrs contrasted with an earlier unsuccessful attempt to raise funding on the crowdfunding site Indiegogo.
So what went wrong with the earlier fund-raise? The biggest issue, says Chowdhury, was that the business didn't prepare well enough.
'We came up with the idea, got excited and put it on Indiegogo, expecting everyone else to feel the same way. They didn't. The second issue that we faced, and that would maybe still have faced even with more preparation, was that reward-based crowdfunding didn't suit our service. We had very few rewards of value we could offer.'
When Chowdhury and co tried again with Seedrs, the approach was wildly different, he says.
'The second time around we got everything right. We planned two months ahead of our go-live date and we made sure we had family-and-friends investment on day one. We also made sure we lined up investors ahead of time to add to the campaign when we needed it, keeping momentum up, and made sure that we had press and social media campaigns ready for each stage of the campaign.
'All in all it was a well-oiled machine!'
Have you ever run a successful crowdfunding round? How did it go?
