Crowdfunding guidance for small firms

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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 recieve some equity in the firm.

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

  • Have a clear business plan will demonstrate the business’s potential – show that you’ve done your homework and researched the market and competitors
  • Keep the pitch simple and avoid using jargon – consider using video
    rather than just a written pitch
  • Market the entrepreneurs as well as the idea- investors will want to see that you have a team that will deliver the end product
  • Promote you and your venture so the crowd is eager to invest when the pitch goes live
  • Dont be overly ambitious with the funding target and don’t over value the business

Recent FSB research found that only 37 per cent of its members were aware of alternative finance providers, such as peer-to-peer lenders and crowdfunders. A seperate 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 importnat than ever if you’re going to succeed in getting finance.”