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Chamber member business Comanche offers tips on how to make the most of crowdfunding. Comanche's founder Clive Reffell explains:
Over 7,000 UK organisations have used crowdfunding so far, raising an average investment of £140,000.
How? Dedicated websites – ‘crowdfund platforms’ – have created a marketplace bringing together people seeking business investment opportunities with people who want funds to launch or expand their business.
And it works for all sorts of companies. At the ‘cottage industry’ level, a jewellery-making business raised £7,500 to buy a laser cutter. At the other end of the scale, the highest UK amount raised so far was £3.95m by Chapel Down, the Kent-based English wine producer, in just three weeks last September.
Companies seeking significant sums of money frequently offer equity in exchange for funding, like we see on tv’s Dragons’ Den.
Hop Stuff Brewery, in the former Royal Arsenal in Woolwich, used equity crowdfunding in 2013 to raise £58,000 from 72 investors.
Some businesses retain their equity and take investment money as loans, tying themselves to delivering fixed repayment terms. The terms have to be attractive to investors because there is a possibility that the company will not achieve its aims, or may even go under.
Yet at the lowest end of crowdfunding, many people make cash donations for not much tangible return at all. They are not professional investors and are often happy to receive just a t-shirt or some other reward as a memento of their support. Or they may get a discounted price for a few months after the business starts. What they often enjoy most is simply the feel-good factor of helping someone move nearer to achieving their goals in life.
There are currently about forty crowdfund platforms to choose from, and between them they focus on several specific business sectors or type of investment through equity funding, loans or donations for rewards.
Whichever platform a business chooses to use, success requires a dedicated marketing plan to drive high traffic levels to it. Pre-selling to some key contacts is also vital to get the ball rolling with early investments that encourage ‘the crowd’ watching from the sidelines.
Early momentum is crucial because most crowdfunding platforms work on an ‘All Or Nothing’ basis. Failure to reach a pre-set funding target by a cut-off date can mean all the money that was pledged is returned to the investors. So although it sounds a straightforward process, there are no guarantees beyond saying it needs a lot of work and access to good marketing skills.
For more information contact:
Clive Reffell, Comanche Communications & Marketing
Comanche offers independent crowdfunding advice and marketing support.