Anu Tayal, Corporate Finance Director explores the pros and cons of crowdfunding
Entrepreneurs and small businesses in the UK often require a capital injection to power growth to get them to that next stage of fulfilling their growth potential.
However, many businesses struggle to access the finance they require, with high street banks still looking through a fairly narrow lens at opportunities. Not surprisingly, that has led to the explosion in businesses seeking financing using a crowdfunding platform.
The UK leads the way in Europe for crowdfunding as an alternative source of finance. It is reported that, ‘crowdfunding’ was the most searched term related to business funding in 2017. So what are the pros and cons? We set out some perspectives below.
Particularly consumer focused companies can benefit greatly from the brand awareness generated by a crowdfunding campaign. Additionally, as shareholders in your company, it is also likely to breed some loyalty to your brand.
In a large part, companies select a value at which they are prepared to raise funds. However, too high and the campaign is likely to fail, in a reasonably public arena.
Historically, crowdfunding was viewed as good for raising sums in the hundreds of thousands, but increasing sums in the millions are being raised.
Investor relations (in part)
Most platforms these days aggregate the investments received into a single nominee administered by the platform, making it legally easier to deal with one party despite having a number of underlying investors sitting behind it.
Not all publicity can be good publicity. A failure of the business will rather publicly have the management team’s names attached to it, which may impact fundability of future/alternative ventures.
As part of the campaign it will be necessary to disclose the company’s financials, future plans and set out the business plan. Once these have been issued to potential investors, it will be difficult to control their disclosure to any other third parties.
Whilst you may only have one legal nominee holding the shares, if you wish to maintain the interest and support of shareholders it will be important to keep them up to date about any major developments.
Need our help?
If you are thinking about raising capital, including crowdfunding, do come and speak with us. We would be delighted to talk you through the process and/or options. Additionally, we are members of the partnership programmes of the bigger platforms in the space which could result in lower overall costs.