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CROWDFUNDING

Crowdfunding Justin Grainger

Business Finance or Equity – Hero or Villain?

The Crowdfunding Model Instituitional Equity Debt Debt Equity Rewards Donations Rewards

4 Expansion

3 Validation

2 Revenue

1 Idea

Crowdfunding has enjoyed great hype as the panacea to all SME funding evils. In fact, crowdfunding is part of the SME funding solution, between small Government start-up loans, strong banks making traditional working capital and asset backed lending to viable businesses and Venture Capital, Private Equity or Initial Public Offering solutions for £500,000+. Nigel Wilson recently argued in The Telegraph that poor productivity amongst UK small cap’ firms was linked to over reliance on short term debt finance and equity finance was more appropriate to facilitate investment in productivity improving assets. Crowdfunding offers solutions but we need to understand what it is, variants, how it works and some of the key pitfalls for directors and investors.

The democratisation of finance Crowdfunding means gathering funding from the population rather than banks. Key facilitators for its recent rapid growth have been software 28 | SUFFOLK DIRECTOR AUTUMN 2015

5 Maturity

technology and social media. The software (aka crowdfunding platform e.g. Kickstarter/ Crowdcube) enables cost effective collection of funds and documentation from many individuals. Social media allows SME’s to broadcast their request for money at an affordable cost; subject to certain Financial Conduct Authority (FCA) promotion rules. The growth of crowdfunding has been fuelled by shortage of SME lending from traditional sources and savers seeking more exciting, self-controlled returns on their money. For investors considering crowdfunding, Caveat emptor will stand you in good stead and in general for your investment to succeed the business must solve a problem for which customers will pay – Crowdfunding or otherwise. For directors considering crowdfunding there are three main options, debt, reward and equity. Debt crowdfunding is simple; business loans up to 5 years, monthly repayments and an interest rate

Suffolk Director | Autumn 2015  

The second edition of the Suffolk Director's friend. An influential voice in a cacophony of sound bites that shares business experience and...

Suffolk Director | Autumn 2015  

The second edition of the Suffolk Director's friend. An influential voice in a cacophony of sound bites that shares business experience and...