More and more entrepreneurs are considering crowdfunding as the answer to their funding needs. Some have had their prayers answered and some have not. Crowdfunding is considered to be the next generation in business investment. It enables budding dragons to invest in businesses that they are interested in, entirely via an internet connection and it enables businesses to get their message across to an audience that they might not otherwise reach.

If you are a business looking for funding what do you need to do to get going with this? Well you need a compelling pitch and these days that includes a video presentation. A video sounds expensive, but can actually be organised for free via many online resources that are available. For example http://www.animoto.com turns your photos and video clips into professional video slideshows in minutes. It’s fast, free and shockingly simple!

To be successful, the pitch must explain the business plan, include detailed integrated financials and answer that all important question of ‘what’s in it for me?’ for the investor. In addition, many successfully funded businesses also offer ‘rewards’ which are essentially enticing lures, for example the product itself available at a deeply discounted rate to successful investors.

So what might a deal look like in terms of average investment raised and average equity offered? According to Crowdcube (http://www.crowdcube.com/), the following is typical from this method of raising money:

  • Average investment raised: £159,000
  • Largest investment raised: £1,500,000
  • Average investment per member: £2,700
  • Average equity offered: 17%
  • Average number of investors: 75
  • Average deal length: 48 days
  • Fastest deal length: 2.5 days

The average deal length is staggering, never mind the fastest deal length!

Does this method of raising investment cost a fortune? Not at all when compared to other sources. There is a success fee (if the cash is raised) and usually a contribution towards the legal fees. In Crowdcube’s case this is 5% and £1,750 including Vat respectively. There is of course the time cost in getting yourself investment ready, but you have to bear this cost anyway when thinking about raising finance.

But won’t you have a new group of difficult minority shareholders to deal with? Not usually, as the investment is structured in such a way that the new shareholders do not have any voting rights.

And so ‘no’, three is definitely not a crowd at least not in the context of these innovative new ways of raising finance and if you have got your sums right, more than three is cause for a party!

 

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