Alternative funding options for small businesses – the power of the crowd
The small business sector is growing
The UK’s small business population is thriving. According to the British Business Bank there are currently a record number 5.4 million small businesses in the UK, with 56% confident they will grow in the coming year.
With small businesses growing at such a fast rate, there’s a lot of competition to secure funds to start and expand companies. It may seem favourable to make do with your existing funds, borrow off friends and family or do the best with what you have. However, enabling your business to achieve its full potential can require larger sums of money than you may have immediate access to.
So how can small businesses get financing and investors to facilitate their company’s growth? We will be producing a series of blogs which will discuss the various ways you can raise finance. The first in the series takes a look at crowdsourcing.
The power of the crowd
Crowdsourcing (or crowdfunding) is an alternative and creative route to raising money for your business. The most effective way to raise money is to call upon a large number of people and ask them to put money into your business or project in return for whatever you plan to give them. This can be anything from a badge and a thank you letter, to a percentage of your equity (depending on the amount of money donated and the size of the business).
Carpenter Box covered this very topic at a recent Crowdfunding seminar. Guest speaker Megan Reynolds from Crowdcube gave a fascinating presentation on raising and investing using crowdfunding. We also heard from Andrew Brooks of Pokito who gave a first person experience into raising capital through Kickstarter.
How does it work?
Predominantly used by start-ups, crowdsourcing is an innovative alternative to more traditional forms of financing. If a business is finding it hard to secure a start-up loan, it can be a great way around this. Start-ups that raise large sums of money crowdsourcing are also more likely to receive external financing later on down the line.
Another advantage of crowdsourcing is its ability to go viral. If a campaign does exceptionally well, the sheer success of the company’s ability to sell their business/product well enough to produce a lot of donations is often newsworthy.
Although not as time effective as other forms of financing, crowdsourcing allows the business full control over what they would like to offer investors in return for the capital. Crowdsourcing is usually used to raise smaller sums of money, although it is possible to make millions from it. The music and tech industries are particularly well suited to crowdfunding. This is mainly due to their ability to easily impress investors with exciting concepts and ideas, as well as offering the final product in return for funding.
Because crowdfunding campaigns reach out to such a widespread audience, it’s important for businesses to appeal to the heart as well as the head. Your audience is far more likely to engage with a thought-provoking video than a graph of the company’s financial projections.
To learn more and discuss the best financing options for your business or if you are interested in attending a future alternative funding event please get in touch with our team on 01903 234094.