
How to start crowdfunding
When you’ve decided upon the type of funding you’d like to use, you need to find a funding website or platform that supports it. This can appear daunting, because there’s an …
When you’ve decided upon the type of funding you’d like to use, you need to find a funding website or platform that supports it. This can appear daunting, because there’s an ever-expanding number of funding platforms to choose between, such as Kickstarter, Crowdfunder, Indiegogo and Seedrs.
Your initial approach to a platform is then very important. We spoke to Alysia Wanczyk, Seedrs’ marketing director, about what actually happens when an entrepreneur and a funding platform meet each other for the first time. She explained, “Once a business completes their online investment campaign, it comes through to our review team. The team then goes through and initially rejects any campaigns that are patently unviable, incomplete or plain silly. Those that proceed are carefully reviewed to ensure that every statement they make is fair, clear, not-misleading and truthful.”
Unlike eBay, where the process of adding sales posts or landing pages is highly automated, Seedrs’ registration system is much more human. Wanczyk continued: “This [checking process] often requires a bit of a back-andforth email and phone exchange between us and the entrepreneur, to ensure we receive supporting evidence for every statement. Once both parties are happy with the campaign, we set it live to potential investors to review – with the peace of mind that what they’re reading is reliable. From there, it is up to investors to look around, ask questions and decide for themselves if a business is worth investing in.”
Funding campaigns usually last for around three months, Wanczyk told us. The question is, of course, what happens if you’re successful? We asked Wanczyk whether the cheque arrives the next day. She explained: “Once a campaign has hit its funding target, we conduct a further due diligence process to ensure that all legal and structural matters are in order with the company. It is all very straightforward.”
What this boils down to is essentials such as registering the company with Companies House, setting up a company bank account, and completing taxation documents. And if you’re not so lucky? Wanczyk told us, “If a start-up doesn’t reach their target [within three months], their campaign is taken down and each of the investors is given their investment back and notified. Sometimes, a business is given feedback from investors and potential investors and they take down the campaign themselves to change it and re-submit it.”
Let’s be clear: investing in start-ups is incredibly risky. The Financial Conduct Authority suggests that 50 to 70 percent of new enterprises fail. But with risk, of course, comes reward. And it’s for this reason that crowdfunding is sometimes viewed as a goldmine by canny investors. So, if you’re sitting on some cash, how can you turn a profit? Seedrs’ Alysia Wanczyk explained the rules of investing via her platform: “Adults over the age of 18 who pass our investment authorization questionnaire or self-certify as high net worth or sophisticated can invest.”
Assuming you satisfy the questionnaire’s requirements – a document prepared with the FCA, so not to be taken lightly – you can invest anything from £10 up via Seedrs. Julia Groves of the UK Crowdfunding Association told us about her approach to investing: “My rules are: I have a fixed amount of money I invest each business year – money I can afford to lose.” She also viewed investing in different products, to spread risk, as important. Finally, she told us to invest in things you know about and want to support. “I can and do put as much money as I can into renewable energy, because I have been working in that sector for 10 years and I am an environmentalist.”
Bill Morrow from Angels Den also explained the importance of investing in firms that have SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) approval. He told us: “Having SEIS or EIS approval makes a business so much more investable, because it offers huge tax benefits for UK investors. Most investors will want SEIS or EIS deals to make up a significant part of their portfolio. It also means that you don’t get taxed when you exit the business.”
Also, consider dilution. In the first round of funding, you may buy 10 percent of a firm. But as they grow, start-ups tend to launch other fundraising drives. If they do, they may issue more shares, meaning you’ll be left holding a reduced proportion of the whole. And with a reduction in holding comes a reduction in dividend income
The landing page is a crowdfunding project’s shop window. It’s where an entrepreneur hopes to catch the eye of an investor and quickly persuade them to get their chequebook out. There are lots of different crowdfunding websites, so landing pages will all look subtly different. There are, however, some essential pieces of information that occur across nearly all the different platforms. Here are the key elements that you will need to think about when building your own landing page.