Crowdfunding guidance for small firms

Guidance about how small firms and start-ups can access finance through crowdfunding has been published as part of Global Entrepreneurship Week, which ran from 18-24 November.

Crowdfunding involves people pooling their money, usually via an online platform, to invest in an initiative or idea being run by others. Crowdfunding for businesses usually sees the investors receive some equity in the firm.

The Federation of Small Businesses (FSB) and the UK Crowdfunding Association have released advice on how to access finance through crowdfunding. The advice includes:

  1. Proper preparation prevents poor performance
    Having a clear business plan will demonstrate the business's potential to the crowd by showing them you've done your homework and researched the market and competitors.
  2. Make your pitch compelling
    Keep the pitch simple and avoid using jargon. This will help potential investors understand who and what they are backing. Consider using video rather than just a written pitch.
  3. Market potential, the entrepreneurs and the idea
    Investors will want to see you have a good idea that will give them a good return, but also that you have a team that will deliver the end product.
  4. Promote you and your venture today
    Begin warming up the crowd with the idea so they are eager to invest when the pitch goes live.
  5. Be realistic
    Don't be overly ambitious with the funding target and don't over value the business as this can put the crowd off. Set realistic targets which you can back up when questioned.

The FSB said it has been an advocate of alternative finance options for some time. But only 37 per cent of its members are aware of alternative finance providers, such as peer-to-peer lenders and crowdfunders, according to recent research. A separate survey of 15,000 SMEs across the EU recently revealed that 85 per cent of loans in the last two years had come from banks.

The FSB's national chairman, John Allan, said:

"Most people's first thought about crowdfunding, is pitching on a well-known TV show. If they like your idea, they'll give you some money in return for some equity in your business. While those people get to pitch in person and answer any questions, crowdfunding means pitching online, so getting it right is more important than ever if you're going to succeed in getting finance."

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