Mind the gap: Why B2B companies are turning to crowdfunding for scale up finance
It is not uncommon for a business to find itself in a financial void at some stage during its growth trajectory.
In the early stages, access to finance is often perceived to be relatively easy or, at least, there appear to be multiple options available. This is because the enterprise is likely to be small, and the financial requirements tend to reflect this. Also people, including family and friends, are prepared to take a punt on a new idea or product and are excited at the prospect of finding, backing and buying into something new.
Similarly, as a business grows there are banks and VCs willing to get involved, especially if the right numbers and lines on charts are going up. Social media also means institutional investors, founders, High Net Worth Individuals and speculators can all be connected at the touch of a button.
Yet, while this would suggest there are investment options at every stage of business growth, nothing could be further from the truth. There are many businesses that have proof of concept, revenue and a clear sight to profitability but that fall below the threshold of stringent banking and funding requirements. These are the sorts of companies that are being funded less and less and represent the real gap when it comes to finance.
The rule, not the exception
In the past, when an SME sought out a loan in order to grow, they instinctively turned to their bank. However, following the financial crisis and credit-crunch-fuelled recession that ensued, mainstream banks found themselves strapped with increased regulations that have prevented them from being able to deliver funds to the same extent that they used to.
According to TSB, the rejection rate of first-time SME borrowers now stands at around 50 per cent. This is a particularly frustrating figure as many of these rejected businesses have perfectly valid business plans.
Thankfully, when one door closes, another opens. There are a plethora of alternative finance solutions that have swooped in to help businesses that fall into the gap between banks and VCs in terms of what they need to see to get passed credit. None more so than crowdfunding, which has become the go-to option, rather than the alternative.
B2B begins to see The World Bank Report estimates that by 2025 global investment through crowdfunding will reach $93 billion. Not surprising given both the market demand and catalogue of success stories that have been well publicised over recent years.
One of the most successful examples is BrewDog, the poster boy of the alternative funding world, that became a household name almost overnight. The Scottish brewery has enjoyed a legendary rise from a two-man (plus one dog) band in 2007 to a globally renowned brand, which saw its sales jump 55% to £111.5m in 2017 - topping £100m for the first time.
But, while initially seen as the preserve of consumer brands - from beer to bikes and almost everything in between - crowdfunding has become a credible option for B2B brands via platforms such as Crowdcube. Examples include fintech start-up Monzo, which only last week reported that it has raised £20 million on in just two days, two hours and 45 minutes. By leveraging the capital of the professionals whilst giving online investors access to professional grade investments that they would otherwise struggle to access, crowdfunding is a leading light in the scale-up funding blackout. Five tips for raising money crowdfunding platforms Having recently raised almost £600,000 using crowdfunding, we wanted to share our key learnings to other scale-up companies that might be struggling in the funding void.
Don’t rush: Planning is everything in a crowdfunding campaign and it is crucial that you line up as many investors as possible before going live on your chosen platform. Before launching, talk to people who’ve expressed interest in your business in the past. Utilise your full network - you and your team should speak to acquaintances, previous colleagues, friends, family and be sure to track the communication process. Pre-registration campaigns can also be useful to build up awareness and engagement. Have a clear story that showcases the potential: Crowd investors are more likely to invest if they feel a personal connection to the business, as well as seeing the potential returns from investing. Your unique, compelling story, is what should be threaded throughout the campaign. Draw attention to the genesis of the business, the size of the market, future product development and the scope there is go get bigger, and better. Make it relevant and personal to the audience, and always ask ‘why’ someone would be interested. Make a good video: You can’t possibly meet all of your potential investors, so invest in creating a video that brings your story to life. Your video should humanise the company and ‘sell’ the team. Many potential crowd investors will be new to you and your business so get your team in front of the camera to show their passion, drive and commitment. People want to invest in people, and stories they can believe in. Engage PR and social: Crowdfunding is an opportunity to raise awareness as well as funds. Use the opportunity to make people fall in love with your brand and you’ll see better crowdfunding results while creating more fans of your business. Establish the specific verticals and customers your products are for, and look at the stories that will mean something to those audiences - the fact you’re raising money via crowdfunding might be big news for you but probably isn’t for them, so concentrate on what the funding will enable your business to do for your customers. Have a solid investment deck: Potential investors, especially the larger investors, may want a deeper dive on the details of your business. Make sure you have them to hand in an easily digestible format that looks professional and has the required detail around your business model and financials.