Finance 15 March 2019

How innovative British startups are using equity crowdfunding

Oppo-Ice-Cream
Oppo ice cream raised over £1.1m across three separate campaigns

Funding expert Nathan Rose reviews his favourite equity crowdfunding success stories, asking entrepreneurs why they chose this method of fundraising over the alternatives.

Equity crowdfunding has established itself as a serious method of funding a business. Early-stage companies no longer need to rely on friends and family, or knocking on the doors of venture capitalists in order to access the money they need – they can instead get it through their customers, suppliers, and other members of their “crowd”. This is a game-changer.

It is fair to say that the UK has achieved global leadership in the space. Part of this is due to the FCA’s supportive equity crowdfunding regulatory regime. The attractive EIS (Enterprise Investment Scheme) and SEIS (Seed Enterprise Investment Scheme) have also been very helpful, whereby investors are offered generous tax breaks to encourage them to invest in Britain’s new wave of entrepreneurs.

As of the publication of this article, Britain’s two largest equity crowdfunding platforms – Seedrs and Crowdcube – have been responsible for facilitating over £534m and £626m of business funding, respectively.

One of the features of equity crowdfunding is that it has utility beyond the money raised. Previously, Business Advice covered how Wave used equity crowdfunding to generate 11 million users for their app. This shows equity crowdfunding’s potential to help enlarge a user base, and deepen the relationship between company and customer – while simultaneously raising 6 figures or even 7 figures of fresh capital.

And, unlike rewards-based crowdfunding (the type of crowdfunding that platforms like Kickstarter and Indiegogo are best known for), equity crowdfunding is not just for funding the latest must-have gizmo.

There is great diversity in equity crowdfunding success stories. Though it’s hard to create a tenable Kickstarter reward for companies in B2B, or services, or which create products which are tough to send through the post (like vehicles, or medical devices)…any one of these can (and have) used equity crowdfunding

In this article, we are going to take a look at a couple of UK equity crowdfunding success stories, and why they chose this method of fundraising over the alternatives.

Local businesses with a crowd – Oppo Ice Cream

 

View this post on Instagram

 

A post shared by Oppo Brothers (@oppobrothers) on

Venture capital very rarely works for more-traditional companies. The venture capital model is all about picking the potential big winners – the sort that might be able to go on to huge 100x exits. But what if you have a more “main street” kind of business? Then what are you supposed to do? Non-technology companies can still be very good, worthy businesses – but venture capital firms just aren’t interested in funding them.

Oppo makes indulgent, healthy ice cream – a great example of the sort of business that equity crowdfunding can work well for. They raised over £1.1m, across three separate campaigns. Founder and managing director, Charlie Thuillier, said that “equity crowdfunding was a way to raise money from a crowd that we already had.”

The ability to use equity crowdfunding to leverage an audience into investment money offers companies like these the ability to bypass the need for venture capital, and close the “funding gap” which has been such a problem for them in the past.

The unicorns – Pavegen

But equity crowdfunding is also working for the really innovative technology companies – the kind that probably could have got venture capital funding, but still decided to do equity crowdfunding because of the advantages that it offers.

Take Pavegen, which raised £1.9m on Crowdcube. Pavegen makes a device which is installed into walkways, generating electricity through the kinetic energy of human footsteps – truly groundbreaking technology.

Pavegen CEO, Laurence Cook explains, “We are doing something no-one else has done. We have a vision to change the way cities operate in a way no other company does. We can really lay claim to be trying to change the world. So we have an incredibly compelling story.”

So, why did Pavegen do equity crowdfunding, instead of getting the money through traditional funding sources? Getting a better deal on the investment terms was a big part of it. “The terms from venture capital are always restrictive”, says Laurence Cook. “They want board seats, control, liquidation preferences, restrictive terms on the founders – all things which don’t favour the company raising money.”

Conclusions

Readers might now be wondering how to crowdfund a business for themselves. Of course, a lot of effort goes into pulling off a successful campaign like the case studies mentioned above.

The first step is to get clear on your objectives for equity crowdfunding – are you mostly looking to achieve customer list growth, deepen connections with your existing business relationships, or is the capital itself the primary goal?

Once that is clear, it comes down to identifying your investor avatar and building your crowd from there. But, for those willing to put in the work, the doors are wide open for UK startups and growing companies to access this new innovation in early-stage finance.

Nathan Rose is the bestselling author of Equity Crowdfunding. He has appeared at crowdfunding events all over the world. Today, he runs the website www.startupfundingsecrets.io, to help startups and growing companies use equity crowdfunding to gain marketing exposure and raise investment money at the same time.

Sign up to our newsletter to get the latest from Business Advice.


 
TAGS:

Franchising