All businesses need funding at certain key points of their lifecycle to continue to grow and flourish. And one of the new forms of alternative finance for businesses, equity crowdfunding, is on the up.
Equity crowdfunding is the process whereby investors pledge money to unlisted businesses in exchange for shares. In its six-year life-span, it has raised well over £600m in the UK, proving its credibility amongst traditional ways of raising funds for businesses.
Of course, the traditional methods that start-up and early-stage businesses use to gain funding still exist, all with perks and pitfalls for the investor and the business.
Angel investing for example, was the method that funded the likes of Facebook and Uber, but it is limited to wealthy investors who are classed as High Net Worth Individuals. Angel investing can however offer a more personable approach to raising funds. Given that investors put a large sum of money into the company, the Angel may also follow-up with other types of business support and advice, something that equity crowdfunding often lacks.
Unlisted businesses can of course also gain funding from the bank, as a loan. While business loans are hard to obtain, and carry obvious risks if the business fails, they do allow the company founder more control over their business, if it's successful. If the business goes on to be very profitable, they will likely be the only/primary shareholder in the business but perhaps won't benefit from the business support often provided by Angels.
However, there is a solution to funding and guidance and it comes from the team behind Brighton-based Shadow Foundr, the on-line investment platform which has raised over £14m in funding from their networks of business angels and investors over the last two years.
All opportunities placed on their platform go through stringent due diligence, undertaken not only by Shadow Foundr, but also via their network of private investors, who crucially must then fund the opportunity to at least 30% of its target, before it is put to the Crowd. Most of these private investors choose to be passive investors in the businesses, however some will offer further assistance and advice if required.
It is this model that makes Shadow Foundr unique - a model led by experienced investors in early-stage businesses.
Shadow Foundr, (authorised and regulated by the Financial Conduct Authority), prides itself on putting investors first - including scrutinising company valuations; which result in a higher success rate than the current industry standard. This transparency ultimately benefits all parties.
Here, Shadow Foundr give you their best advice on how to choose the right project and platform.
1) Check if the investors are content
To find out if a particular crowdfunding platform is doing well, see if its investors are happy. Look at forums & bulletin boards to see if there are any complaints. If there are, then something is wrong.
2) Get frequent updates on performance
The best crowdfunding platforms are those that offer regular updates on performance. The platform should ensure that all the funded businesses submit regular performance reports.
3) Check that the platform is an authorised one
Only crowdfunding platforms that are authorized and regulated can protect the investor. An illegitimate platform will risk losing your money. It is your responsibility to check that it is authorised.
4) Choose a platform with experience in crowdfunding
Look for a crowd-funder that has been in the business for some time. Experienced crowdfunding platforms know how to get success within a short time. This usually means that before the start-ups to be funded go live, nearly half the amount will have been raised.
5) Do not fall for false claims
When the deal seems too good, always think twice. Crowdfunding platforms will entice you with testimonials on how they have helped hundreds of companies. You need to verify this information, as some claim to have done more than what they actually have, in a bid to get more investors.
Recent examples of Shadow Foundr's successful investment opportunities over the last twelve months can be seen at www.shadowfoundr.com
Globally the UK, the US and New Zealand are now prolific in their use of equity crowdfunding. However more countries are embracing crowdfunding, meaning over the next decade there will be a surge in the amount of successfully equity crowdfunded businesses, which is very positive for the global economy, investors, and businesses.
Shadow Foundr believes that equity crowdfunding has truly earnt its place in the alternative finance world, as a viable means of raising money for an unlisted business, and its future is extremely exciting.
For more information about equity crowd funding go to www.shadowfoundr.com
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