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How to raise money for your business from lots of investors
Before the Internet was such a huge part of our everyday lives, entrepreneurs who wanted to raise money for their businesses often had to do so in a certain way.
This usually involved approaching a bank to apply for a business loan, or applying/being invited to pitch to one or a group of angel investors to raise equity investment.
Whilst this is still done today, the explosion of technology has brought with it a number of online alternative finance solutions, which now mean that business owners can now approach tens, hundreds, or thousands of potential investors, all at once.
Whether it takes place on or offline, "co-investment" is the act of investing in a deal, business, or opportunity alongside one or a (small or large) number of other investors.
It can also be referred to as “syndication” and I’ll be using the terms interchangeably throughout this post.
It happens all the time
Think about the BBC programme, Dragons' Den. The show features an angel network who decide whether or not they would like to invest in a company, based on the pitch the entrepreneur delivers. Sometimes Peter Jones will invest in a business when no other dragon will. Other times, it's Deborah Meaden who might want to purchase an equity stake. But when they decide to put money in at the same time (and most likely on the same terms), they are co-investing.
You may have heard the term "syndication" through The National Lottery. For example, a group of people who work in the same office pool their money to buy a ticket and agree to split any winnings produced by those numbers.
Online equity crowdfunding platforms introduce a new group to the mix - the "crowd". Platforms which offer this form of co-investment enable people who are new to the world of early stage investing to take part in this exciting asset class; an asset class that was once only accessible to high net worth individuals.
Crowdfunding in and of itself is a form of co-investment.
With co-investing through equity crowdfunding platforms, new online angels – the crowd – are now able to participate in deals, taking advantage of that experience and expertise, and mitigating the risk of making their first investment decisions. The idea is that experienced, larger investors will only choose businesses which will offer them the best chance of a good return. This is one instance in which it makes sense for the crowd to follow…For you, this should mean that more people get involved in your investment opportunity.
Also, online co-investment enables funding rounds to be closed out much more quickly than the offline process, which means that you should be able to move forward with putting the growth plans for your start up business into action. This is good news for you because you may go on to reach an exit sooner or at a higher value than first anticipated.
Ok, so now you know how to raise money, it's time for the burning question:
Does it work?
Co-investing can be a highly successful way attracting more investments and has done in many cases. For example, here on GrowthFunders, Lewis Pennicott Design set a funding goal of £10,000 to build the prototype of their product, Chop2Bowl. This target was reached in a matter of days and they decided to go into overfunding after receiving interest from a VC, Rivers Capital Partners. Following a pitching session and a number of follow-on discussions, Rivers decided to provide match funding, investing another £10,000 into the start up business, alongside the crowd.
Crowdfunding as a practice is gaining popularity year on year. A report was recently published by NESTA and the University of Cambridge which showed just how successful a method it is for raising start up finance. You can read our summary here.