What’s New in Crowdfunding in 2017? Experts Weigh In.

As one of the fastest-growing funding options for entrepreneurs, equity crowdfunding is constantly evolving. To get the most out of your crowdfunding efforts, you need the most up-to-date advice and insights, but it can be difficult to know which sources to trust and if the information is still relevant.

This is why Business Funding Show interviewed four of the UK’s top equity crowdfunding platforms, each offering their own insider perspective on some of the most important but little-discussed trends in the industry.

We spoke to:

Tom Horbye, Head of Campaigns at Seedrs, which has funded over 540 deals valued at a total of £280 million.

Goncalo de Vasconcelos, CEO of SyndicateRoom, whose profile has grown to include over 100 high-growth companies since its launch in 2013.

Oliver Woolley, CEO of Envestors (with an equity crowdfunding platform, Envestry), a network of 3,000 sophisticated investors who have contributed a total of £100 million to over 200 companies.

What should entrepreneurs consider when choosing a crowdfunding platform for their campaign?

Seedrs (Horbye)

I believe there are 5 key questions anyone looking to raise money via any equity crowdfunding platform should ask:

• What class of shares are offered and who will manage them? Does the platform allow you to offer A and B class shares or are all investors treated the same, offered ordinary shares and managed under a simple, organised structure?
• When will I get my money? Is the platform regulated to hold investor money? When the campaign receives an investment, is it actually an investor putting in money or simply making a pledge? You don’t want to be left chasing ‘pledged’ money.
• Who can invest in my business? This may seem like a basic one, but a number of businesses do not realise that some platforms don’t have the regulatory permissions to allow people living outside the UK to invest.
• What are the fees involved? Are there any hidden costs like legal, tax relief or payment processing fees I may need to pay? Do I have to pay anything upfront or only if I reach my campaign target?
• What is the repeat investment rate of platform investors? Whilst you can’t guarantee all investors on a platform will invest in your business, knowing that they might have a higher likelihood to is important.

SyndicateRoom (de Vasconcelos)

It’s important that entrepreneurs consider what type of investors they’re looking to engage with. Different platforms will offer different approaches, and it’s important to work with a company that fits well with your needs. SyndicateRoom is a high net-worth and sophisticated investors only platform, meaning that complex sectors looking for larger amounts tend to fare well. However, companies with consumer services or products such as breweries, cafes and restaurants are probably better off with a crowdfunding platform that caters for smaller retail investors. No shame in that — just different type of investors for different objectives.

The other key issue to consider is the track record of each platform and what past clients say about their professionalism. You will want to make sure you work with a professional platform that takes you seriously and that has a great rate of success at successfully completing funding rounds.

Envestors (Woolley)

Entrepreneurs should consider what investors they are looking to attract. Many sophisticated investors are abandoning the consumer-focused platforms owing to high valuations being asked by companies.

Why are crowdfunding platforms beginning to form partnerships with traditional financial institutions such as banks?

Seedrs (Horbye)

Seedrs has partnered with financial institutions including RBS and NatWest through their Capital Connections initiative, and another bank albeit not ‘traditional’ — Fidor Bank.

There is certainly a movement amongst the incumbents, corps and other financial services brands towards embracing fintech wholeheartedly. Retaining customers seems to be the key focus, which is achieved by responding to their tech savvy customers requirements and building partnerships with challenger brands accordingly.

This in turn future-proofs their businesses by giving their customers access to innovative finance solutions they cannot offer themselves. Fom an investor perspective, access to long-term, high risk investment opportunities with the lure of outsized future returns that outweigh other asset classes, and for SMEs, access to alternative financing when the banks are unable to service them.

SyndicateRoom (de Vasconcelos)

When the economy crashed in 2008 and the banks were suffering and unable to operate in the way they could previously, a swathe of fintech companies emerged providing services around investment, funding, payments and lending. Some of those new players are very much here to stay and the traditional players are becoming increasingly aware of that. Rather than compete, there is a lot of sense in collaborating. I have regular conversations with the traditional financial services players, some very exciting ones.

Envestors (Woolley)

Not sure how much this is happening — banks are paying lip-service to online investment platforms but still think they are too risky.

There seems to be a trend of pairing an online campaign with a real-world event. Is this happening on your platform? Why do you think it’s important for a crowdfunding campaign to have an offline component?

Seedrs (Horbye)

Raising capital via equity crowdfunding combines the two elements that any growing business needs, capital and brand awareness. More and more businesses are seeing their fundraising efforts also as a marketing campaign, whether it be for pure brand awareness, or community engagement and/or customer acquisition.

As equity crowdfunding becomes more mainstream, just saying you’re crowdfunding isn’t going to get a business into the headlines. Businesses need more of a hook and tying a raise in with a new product launch or development will help it increase the likelihood of grabbing headlines and getting more engagement.

SyndicateRoom (de Vasconcelos)

Absolutely! When crowdfunding, it is not a case of putting your investment opportunity onto a platform and sitting back. The most successful campaigns incorporate many activities, both online and offline. When different facets come together, from investor testimonials and media coverage to pitching events and one-on-one meetings — the results happen.

Envestors (Woolley)

This will increase with regards to sophisticated investors (investing more than £25,000 per investment) as we find they like to meet the team before investing. Less sophisticated crowd investors investing £1,000 are possibly less concerned about meeting, especially if they are customers or fans already. Our investor members at Envestors, even the most technically savvy online investors, still like to come to lunches and investor meetings. They also still like to have hard copy magazines, even though we make everything available online!

In short, entrepreneurs considering a crowdfunding campaign to fund their business need to remember that:

• choice of platform is important. Some platforms are not only more reliable than others but also more appropriate for your type of business.
• alternative and traditional funders are starting to work together. Look out for new partnerships in this area and think about how they could benefit you.
• crowdfunding happens offline, too. Many investors want to meet the founder in person and be engaged with the businesses they invest in in a tangible way.

Learn more about the latest trends in crowdfunding at the Investment Conference on 15th November. The event will be held at London’s NatWest HQ and begin at 12:30. Tickets sales end TOMORROW. Get yours here!