Is Crowdfunding suitable for ambitious, fast growing technology businesses?

Is Crowdfunding suitable for ambitious, fast growing technology businesses?

Having worked with several entrepreneurial businesses, we understand how difficult it can be to raise funding to start and grow a business.  The task of securing investment can be a lengthy process, one which may take several weeks and months of effort.

We recently exhibited at VentureFest East which brings together innovators, successful entrepreneurs and investors. It addresses issues specifically related to building a business in today’s fast moving market.

As you would imagine Crowdfunding was a topic that came up in many of the seminar sessions and led to lengthy discussions between the audience and the panellists speaking at the event.  It was interesting to hear their strong opinions, negative and positive, on its value (or otherwise!) to fast growing businesses.

Crowdfunding is one of many sources of funding available to businesses

  • Bank loans
  • Grants
  • Crowdfunding
  • Angel Investment
  • Venture capital

Over the course of the past two years, Crowdfunding has become a popular source of funding.  This growth is partly due to the financial crisis and banks tightening their lending criteria. According to a recent Crowdcube report £34m was raised in the UK in the first half of 2016 alone!

The positives of crowdfunding

There are multiple crowdfunding platforms for companies to apply to raise funding giving you access to hundreds, maybe thousands, of potential investors.

The process is relatively quick.  You will receive feedback from the platform if your company is suitable for their investor base within a couple of days.  Once accepted a corporate video is shot and uploaded to the platform and your investment goes live.

There is only a 30-day window to reach your funding target.  Once the funding target has been reached the platform will work with you to close the funding round, complete the necessary legal documentation and checks on investors.

The negatives of crowdfunding

Do you really want multiple investors that will not add much value to the business?

The pitch and corporate video will need to be of a high standard incurring additional costs and may be a waste of valuable resources if crowdfunding is not successful.

Crowdfunding is all about creating awareness of the company and gaining momentum to ensure the target is met.  To gain momentum businesses normally need to have around 30% of the funding target committed from friends and family.  If you don’t have this committed the round is unlikely to succeed.

Angel funding is the preferred route for the technology start-up

The view from a large number of attendees at VentureFest is that Crowdfunding is not the best route of finance for ambitious companies.  Although it may be a quick way of raising funding the investors don’t add much value to the business.

The alternative, preferred solution was to fundraise from experienced angel investors who have invested and executed in previous companies.  These angels can add vital experience and value to companies taking them to an exit or to the next phase of funding – venture capitalists.

Read our full guide on the investment routes available for entrepreuenrs of a growth potential start up.  Which method of fundraising do you prefer?