When the going gets tough, the tough get crowdfunding. Image credit: Shutterstock.
Changing financial winds are making raising funds harder for firms. And even giants in the tech sector such as Facebook owner Meta are being held to task on the need to deliver profit on capital. But that’s not to say that prospects for companies with bright ideas have dimmed. Crowdfunding platforms for tech firms represent a productive and engaging opportunity for founders to pitch their vision to potential backers.
Starting with the basics, crowdfunding platforms for tech firms enable companies to look beyond traditional financial institutions and appeal to a much wider range of funders. Crowdcube – a crowdfunding platform founded in 2011, when a post-recession world made it challenging for entrepreneurs to bring ideas to life – has over 1.2 million members.
Seedrs, which this year celebrated a decade of helping companies to crowdfund their business aspirations, is another popular option. The site reports a total of 1,814 funded deals, amounting to £2.2 billion in overall investment. And – illustrating the trend – it took Seedrs 8 years to reach £1 billion, whereas the £2 billion mark was crossed just two years later. Firms that have used the platform include UK fintech company Revolut, which raised £3,927,802 from 4,260 investors.
Rewards for backers – who should be aware that investments of this nature carry risks to their capital – vary according to the type of crowdfunding platform. Rewards could include equity in the firm or repayment with interest (in the case of peer-to-peer crowdfunding). And backers don’t necessarily have to wait for an IPO to realize their returns as some platforms provide secondary markets, which enable early liquidity opportunities.
Alternatively, investor exits can arise when crowdfunded companies are acquired – for example, investment bank JP Morgan Chase purchased robo-adviser Nutmeg last year after partnering with the firm in 2020. Nutmeg was a big hit on Crowdcube, raising 250% of its target in 2019.
Key to success for entrepreneurs in making the most out of crowdfunding platforms for tech firms is getting the pitch right. Companies need to get their message across to potential investors and appeal to their audience. They also need to have supporting materials prepared so that crowdfunders can dig deeper and cement their decision. Fortunately for founders, they are – in 2022 – treading a well-followed path.
Crowdfunding platforms, which operate by taking a percentage of the funds raised by campaigns, want companies to succeed. And many sites have a wealth of information available on business valuation, improving pitch decks, and much more besides. In fact, if you are in the early stages of founding a tech business, crowdfunding sites provide a wide range of case studies to learn from and gather inspiration.
Examples include cleaner fuels for railways, smart isolators for lowering the cost of air conditioning, an urban VR theme park, and green tech for reusing materials in electric vehicles. And that’s just lightly scratching the surface of some of the pitches that are currently live on popular sites.
In terms of priorities, companies that decide to launch a crowdfunding campaign can expect to be quizzed on their financials such as burn rate. Investors will want to know the timescale required to generate positive cash flow from operations. They will also want firms to know their market and be able to identify competitors.
Tech founders may be most excited by their products or services, but having the financial insights to go with them could make all the difference. And then there’s classic VC advice such as surrounding yourself with a great team – another factor that savvy micro-investors will be on the lookout for.
Whatever the outcome, a crowdfunding journey gives start-ups the chance to ramp up their market knowledge. The barriers that used to exist when companies had to rely on traditional investments alone have been broken down. And today there are many benefits to crowdfunding for companies beyond just putting money in the bank.
As the Seedrs team points out, businesses that crowdfund tend to have a loyal customer base. Funders are not just clients, but advocates for the companies they’ve backed. Online pitches serve to raise brand awareness for firms amongst investors. And visibility is further enhanced thanks to the publicity of being featured on crowdfunding platforms for tech firms.
Crowdfunding gives companies valuable opportunities to road-test their ideas and gather market insight. Firms can reach out to backers to find out why they signed up and, conversely, request feedback from those that passed up on the opportunity to join their campaigns. Collecting insights in this way means that even if an idea doesn’t fly as expected, companies have the potential to pivot and return to the market with an updated approach.
9 November 2022
8 November 2022
8 November 2022