Putting the FUN back in Funding

Feb 14, 2013


By Lyndsey Hall

If you are thinking about starting your own business, one of your biggest worries will probably be funding. The British economy is struggling, banks are lending less and less to new ventures, and people are being much more careful with their money. But fear not, there is a new initiative in town that could allow you to fund your business without worrying about a hefty interest rate from the bank, or having to empty your friends’ and relatives’ savings accounts. Crowdfunding could be the answer to your financial prayers.

Crowdfunding allows you to fund your business and attract industry relevant investors at the same time. Using the Internet to promote your start-up and appeal for contributions on websites that are relevant to your industry can attract the kinds of investors who will take a real interest in your business, and could bring invaluable knowledge and experience to the table.

Crowdfunding started out as a method of funding the creative arts, such as independent filmmakers and musicians, by appealing for money from fans and the public. It has quickly expanded into other industries, with the potential for funding almost any new project or business you could imagine. There are now over 450 Crowdfunding platforms, such as KickStarter in the US and SellaBand in Germany, to help connect new start-ups with the right financial backers for them. Once you have decided on your target market, these online platforms can introduce you to a pool of potential investors.

There are 3 different kinds of platforms to be aware of: Relational Mediators, who act as an intermediary between supply and demand, linking businesses and projects with people who believe in them and wish to provide monetary support; Social Gatekeepers, who raise funds for clients by exploiting their social media connections; and Growth Engines, which seek stakes from a community of high net worth private investors and link them directly with new projects and start-ups. The type of support can also differ, from a one-time financial donation, for which backers might receive a small gift or recognition in company advertising, to a serious investment and a continued contribution to the growth and development of the project/business as a shareholder.

Last week, Barry James wrote an open letter to the coalition government suggesting Crowdfunding as a major alternative to traditional sources of funding. He claims that the only way to achieve the government’s aim of creating a ‘Big Society’, and encourage entrepreneurs in the current financial climate is to provide new channels for funding. Adopting Crowdfunding as a key method of sourcing funds would allow thousands of would-be entrepreneurs to leave self-employment behind and start their own businesses, which would benefit the British economy exponentially by creating more jobs and relieving the financial strain on the banks and the government.

Seed Enterprise Investment Platform (Seed EIS) is a government-backed scheme that offers Crowdfunding for UK businesses via their online platform. The scheme offers investors tax relief of 50% of their contribution to encourage investment. However, we need to see more schemes like this being supported by our government and advertised to would-be entrepreneurs and prospective start-ups in order to make Crowdfunding a serious competitor for traditional lending methods.

According to Mr James, “Crowdfunding is revolutionary because it effectively junks many of the barriers to getting started and channels people in the right direction towards what will work… It’s as nurturing as it is challenging.”

If, after reading this, you are still thinking about starting your own business and want to learn more about the available routes of funding, give Knowles Warwick a call and let us advise you on the best option for you and your business.

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