By Sam Quawasmi, Co-Founder of Eureeca
Whilst having a great business idea or invention is a brilliant foundation it is rarely enough to guarantee success on its own. For that, you are likely to need capital and, unless you are extremely wealthy, then you will need to rely on external investment if you are to grow your business.
There are a range of options out there for businesses to consider such as traditional angel/venture capitalist (VC) funding, however, equity crowdfunding is the newest addition and is becoming increasingly attractive. In fact, a 2016 University of Cambridge report suggested that year-on-year growth in the sector was almost 84%, and a World Bank Report has found that global crowdfunding investment could grow to $90bn by 2025.
So, what is it and why can it be a great option?
Equity crowdfunding, the model used by us here at Eureeca, allows investors of nearly all profiles to buy equity (shares) in growth-oriented private businesses. These can be from any sector and we currently have clients from retail to technology and everything in between.
Our international investors – which are comprised of friends and family, customers, casual retail investors, angel investors, and institutional firms – effectively become co-owners of the business and are naturally incentivised to help it succeed. In simple terms its allows startups and growing companies to get funding from people who often bring more to the table than just money. It makes capital raising and investing more accessible, efficient and transparent than other traditional sources of capital and rather than replacing angels and VCs, the model is serving as a vehicle for them to invest in SMEs, along with the rest of the crowd.
Counting the cost
It is also very affordable with a limited financial risk as equity crowdfunding platforms usually only charge a fee to businesses if, and when, the money is raised. If the campaign is unsuccessful there is nothing to pay. Companies choose how much capital they wish to raise and how much equity they are prepared to part with.
Control and Profile
Another potential benefit is that crowd investors are unlikely to want or expect high levels of control or influence over a business in the way that VCs often demand. This can be very important for many business owners who are understandably not keen to pass over control of their creation. It is also a fantastic opportunity to showcase your business and can help to drive sales as well as investment. Getting people invested in your project is generally considered the most effective way to get them to contribute, and telling a story is often the best way to get a customer’s attention. The best solution is to pitch your product around the problem it solves rather than just stating the benefits. Using visual media such as video and photographs is an excellent way of doing this.
There are a number of equity crowdfunding platforms out there so it is important to check that you are choosing the right one for your business. Key differences are in the type of business ideas they accept, the commercial requirements, the people they reach and how they can help support you. For example, at Eureeca our USP is that we specialise in giving businesses the chance to access funding from an international pool of investors, as we are the most regulated equity crowdfunding platform in the world, with four licenses to operate in three different continents (Europe, Middle East and South East Asia).
This broadens the investor base and also means that business can leverage this network for strategic connections and expansion into new markets. We have a very hands-on approach and work closely with businesses to help them prepare campaigns and advise them once the goal has been achieved.
To conclude, equity-based crowdfunding represents an attractive opportunity for many early and mid-stage companies who are looking to raise capital, but it is important to find the right match that can help you stand out from the crowd and support the next stage of your growth.