Article by Alice Elliott
Once upon a time it was easy to go to your bank, cap in one hand and a business plan in the other, to borrow some cash to further your business.
But since the credit crunch this activity has been cruelly curtailed, leaving the banks most reluctant to lend. Small business wishing to expand or develop a new project have had to act entrepreneurially to find alternative sources of funding.
So what’s the alternative?
So online alternatives were set up in the form of crowdfunding. This basically means collecting together like-minded angel investors or altruistic benefactors with spare cash looking for something worthwhile to invest in.
Special websites like CrowdCube hold an event like an online auction where individuals can pledge money towards a project and in return gain a small equity of the business they are funding. It’s a bit like an episode of Dragons’ Den!
What can the company do?
The company asking for the money has to present their business case to appeal to the patronage of the investors, who will invest according to whatever emotional attachment – or financial return they can foresee – they feel towards the business or project in question.
But there is a twist in the tail – if the recipient business fails to gather all of the funds requested by the stated deadline, they have to return everything back to the donators. In other words, it’s all or nothing. And the deadline tends to be tight so the Internet auction atmosphere can get pretty tense on the last day!
Is there an example of this?
Yes, there is a specialist online boutique called Seek & Adore(who sell homeware, accessoris and gifts handmade by British artists) who wishes to raise £250,000 by 16 June to take their marketing activities to the next level. So far they’ve managed to raise 25% (£63,000) from five investors, but more help is needed to reach their target in time.
This website represents 150 British designer-makers and promotes to sell their unique homeware, jewellery, accessories and handmade gift ideas. The extra funds would go towards creating catalogues and targeted direct marketing activities to extend the awareness of the British designer-makers’ products and their reputation outside of the website.
Who also benefits?
The owner, London mum Hatty Fawcett, has ploughed all her life-savings into her business, and is excited by the success of her venture – but more funding is required to expand the business. She has over 20 years of marketing experience and a specialist team to help her. Listen to her promotional video about her fundraising activities , or go to her page in CrowdCube to find out more.
Crowdfunding is an interesting concept, and we are yet to see if Hatty will secure the funding she is looking for to expand her business through this route, but it is certainly an option worth considering if you are looking at ways at reaching out to potential investors!