Where to go to raise capital for your startup or growth business
A new report has been published, which outlines the growth, size, and scale of the UK’s alternative finance sector.
Designed, delivered, and authored by Peter Baeck and Liam Collins of entrepreneurship and innovation charity, NESTA in collaboration with Bryan Zhang from the University of Cambridge, the study looks at evidence which shows that the amount of capital raised in this sector has more than doubled in recent years and is predicted to reach £1.74 billion by the end of 2014.
Whilst the study focuses on all aspects of alternative finance: peer-to-peer business and consumer lending, invoice trading, and rewards-based crowdfunding amongst others, it is the equity crowdfunding findings that we’ll look at here.
What can you do, based on the evidence collected for the NESTA report, to give your start up or business the best chance of raising the capital you need to grow to the next stage?
Importance of tax relief
95% of the businesses funded on equity crowdfunding platforms have been SEIS (Seed Enterprise Investment Scheme) compliant, which means that investors could have received up to 78% relief on any investment they made into a start up.
Investors of all sizes, from new online angel to experienced investor, are looking to mitigate the potential risks and enhance their potential rewards.
Tax breaks, such as SEIS and EIS, make investment opportunities a lot more attractive. For example, if an investor invests £100 into your start up, and it is SEIS compliant, they will receive 50% relief, meaning that their investment has only cost them £50.
Build a good team
It’s often been noted that investors are reluctant to invest in an individual – they want to see a business with a strong team. This was backed up in the NESTA report with the quality of the team rating “important” or “very important” for 97% of respondents.
Hire the best team your budget permits and make sure you have the most important areas covered first. For example, if you’re heading a tech business, both front and back end developers will be essential.
The strength of your team will be an integral part of the decision potential investors make on whether or not they want to invest in your business.
For more information on the importance of building a strong team in your business, check out our post on how team work can make the dream work.
Show your business off properly
Make sure the pitch you present to potential investors is of the highest quality and reflects your business accurately. Quality of the pitch rated as one of the most important factors by 96% of respondents.
The study also found that failing to generate momentum in the early stages of the campaign and not carrying out sufficient marketing prior to and during the campaign led to the majority of failed fundraising ventures. Don’t let this be your downfall – check out our 'From Idea to Killer Pitch blog series for tips.
Be an ambassador for equity crowdfunding
The report looked at where the majority of fundraisers (entrepreneurs / business owners) are, based on geographical location. According to the graph included below, London and the South West are leading the way when it comes to awareness and use of equity crowdfunding platforms.
The stats also show that other regions throughout the UK are starting to follow suit as awareness of alternative finance solutions grows. It’s an exciting time for business owners as they start to embrace both equity crowdfunding and the platforms which offer it.
The lower numbers across the United Kingdom, as shown in the above graph, are due to a lack of awareness surrounding the opportunities that equity crowdfunding can bring.
The report found that alternative finance as a whole “remains off the radar for almost half the people in Britain, with 42 percent unaware of it.” This is something that desperately needs to change, and it’s a change that you can help to make.
If you’re considering raising growth capital using an equity crowdfunding platform, one of the most important things to do is to start raising awareness of your campaign amongst your network, prior to launching. This includes putting the message out across social media, your personal network (friends and family), and potential customers.
But it’s not enough just to say that you’re running a crowdfunding campaign. As we can see from the evidence above – a lot of people don’t understand what that means. So put that message out too. Educate the very people you’re asking to support your fundraise. Explain the process to them, or guide them towards a platform where this information is available for them to read, download, and learn from.
As the report found: “in order to grow, the [alternative finance] industry needs to continue innovating, educating users and addressing the various concerns consumers and SMEs have about alternative finance.”
Let’s raise awareness amongst both entrepreneurs and potential investors and ensure that more start up, early stage, and established businesses get the capital they need in order to grow by using equity crowdfunding platforms.
Global Entrepreneurship Week (Nov 17th – 24th)
And what better time to start spreading awareness of alternative finance solutions for business owners and start ups who want to raise seed or growth capital than right now?
Global Entrepreneurship Week is the world’s largest celebration of the innovators and job creators who launch startups that bring ideas to life, drive economic growth and expand human welfare. Find out more here.
Have you used finance on an equity crowdfunding platform? Or is it something you’d like to do but feel you don’t understand the process well enough? How do you think awareness of both equity crowdfunding and the alternative finance industry as a whole could be improved for business owners who want to raise growth capital via these methods? We’d love to hear your thoughts so please leave us a comment below.