Being transparent and honest about your growth plan is key to attracting crowdsourced funding, says Salvatore Minetti
The UK boasts one of the world’s leading start-up communities. Indeed, the UK’s tech start-up scene has experienced the fastest rate of growth in Europe in the past five years. While there are many factors contributing to the rise of start-ups, it’s difficult to overlook the role of alternative finance platforms have played. They connect young companies with investors eager to support the nation’s collective of entrepreneurs.
Alternative finance offers unique funding opportunities for start-ups, and this is particularly true when it comes to launching a crowdfunding campaign. So, what determines a successful crowdfunding campaign? As CEO and co-founder of Prospex, a company which has just launched its second crowdfunding round on SyndicateRoom, there are five key lessons entrepreneurs need to take on board.
Equity or debt?
From the outset, entrepreneurs need to decide whether they are more suited to equity or debt finance. With debt finance, investment comes in the form of loans which are repaid with interest over time. This finance option is normally suited to more mature businesses with a consistent turnover that enables them to repay the upfront investment made by the individual, group or company.
Some entrepreneurs may opt for debt investment as it enables them to raise necessary capital without yielding a share of their business. However, a lack of stable, sizeable revenues can prevent fledgling companies from going down this route.
Meanwhile, equity finance involves selling a stake in the business to investors. This has many advantages, including the potential on boarding of investors who are themselves experienced business leaders and who bring with them a wealth of skills and connections.
Have a realistic and attainable target
In today’s environment, there is an underlying pressure on entrepreneurs to secure as much money as possible in order for their business to be taken seriously. This is the entirely wrong approach to take. Instead, entrepreneurs need to be realistic when it comes to setting their fundraising goals. Doing so will allow them to establish exactly how much external investment is needed and how it will lead to their long-term business growth.
In reality, both missing and overshooting funding targets can be counterproductive to a young company. That’s why it is best to be clear on how much funding is needed for the business to grow instead of trying to raise as much capital as possible.
Be clear on how funding will be used
Setting out and following quantifiable business achievements – whether in relation to product development or team expansion – can help entrepreneurs determine how much investment they need.
Funding, in whatever form it takes, must therefore be informed as part of a development strategy which pinpoints exactly when investment will be needed, volume of capital required and what it will be used for. Without this, business owners can fall into the trap of simply launching a funding round to raise as much investment as possible with no clear strategy in place.
There is a risk that entrepreneurs could raise more finance than they are able to manage, leading to hasty, expensive and inefficient allocation of resources. Being disciplined with goals and targets from the outset will keep business spending on track and ensures that business owners are aware of how much capital they need at each stage of expansion.
Being organised and disciplined throughout the crowdfunding campaign can make a massive difference in the outcome and is crucial for overseeing sustainable business growth. Moreover, this is particularly important for investors, who often have a vested interest in the business and are keen to see the company reach specified targets at a sustainable rate.
Have a clear PR and marketing strategy
A good marketing strategy is often fundamental to the success of a crowdfunding campaign. Promoting your campaign both before it starts and throughout the raise is a great way of boosting exposure and attracting potential investors. Setting aside time to spread the word on social media, through the press, and through general networking can pay off massively.
Launching a crowdfunding campaign is undeniably a daunting prospect. However, with a clear funding strategy in place – including a good understanding of what type of funding is best suited to the business and how the money will ultimately be spent – small business owners can be confident that their efforts will pay off.
Salvatore Minetti is the CEO/founder of Lomi Artificial Intelligence whose first product is sales lead generator Prospex.ai. He is also a non-executive director for numerous technology companies