Guest Post: Can Crowdfunding Boost the UK Economy?

It’s still very early days, but tentative reports suggest that the country may finally be starting to emerge from the recession. According to the Office for National Statistics, the UK economy has grown by 1.9% – its fastest rate since 2003. The message though, is not to get too excited; we’re not out home and dry just yet.

We all remember when long-established businesses suddenly crumbled under the weight of the recession. Yet despite that, new businesses started to emerge, possibly due, at least in some part, to the sudden redundancy and unexpected unemployment. It has brought out the entrepreneurial spirit in a lot of people. These new businesses have created jobs in every sector and it seems that there is a light at the end of the tunnel.

However, there are still problems to be faced. Whilst surviving the early days is one, getting started in the first place is perhaps the biggest hurdle. As I read in the FSB Voice of Small Business Index for Q4 of 2013, access to finance is a serious concern and a possible / probable barrier to achieving growth aspirations. One of the traditional routes to finance was the banks, but they aren’t lending as readily as they have previously and people are having to find alternative funding.

Enter Crowdfunding…

An emerging market trend which is quickly becoming the most common form of fundraising. There are four types of crowdfunding:

  1. Reward

  2. Loan

  3. Donation

  4. Equity

Whilst it is up to the entrepreneur to decide which type of crowdfunding they want to pursue, there is usually only one or two types which best fit their endeavour. For example, a charity cause is perhaps best suited to donations-based crowdfunding. A social entrepreneur, such a filmmaker or music artist should perhaps look at reward-based crowdfunding. However, entrepreneurs leading private start up, early stage, or established businesses have a number of routes available to them. Some online platforms offer a combination of crowdfunding types. Depending on the size and style of the business, either one or both of reward and equity crowdfunding could be the best fit.

How Does Equity Crowdfunding Work?

Equity Crowdfunding offers shares in a business in return for investment. Traditionally, this is a time-consuming practice, with the entrepreneur having to spend a lot of time and focus away from their start up or early stage business. As with a lot of things, the process of raising finance has been taken online which allows for a much more simple and streamlined experience.

Instead of having to spend time and money travelling around to meet with countless angel networks and early stage VCs, an online platform gives the entrepreneur the opportunity to deliver one pitch to a huge number of potential investors, including new online angels, or the “crowd”.

An equity crowdfunding platform, such as GrowthFunders, offers the opportunity for  co-investment and syndication which means that crowd or online angel investors can invest alongside angel networks who in turn, can syndicate deals with other high level investors. The co-investment and syndication structure means that investors are able to retain capital for any follow on rounds the entrepreneurs needs or decides to undertake.

What Does This Mean For The Business Owner?

They can focus on building and growing their business, knowing that there are investors who are interested in its future success. The entrepreneur can use the finance they receive in order to progress their business effectively and successfully. Whilst equity crowdfunding is still a relatively new venture, it is quickly gaining traction as a trusted means of raising growth capital.

The Impact Of Small Business

The Federation of Small Businesses are (perhaps obviously) championing the potential of small businesses to “help drive total UK growth and recovery”, as it was claimed that a number of small firms had reported increased revenue. Charles Davis, Head of Macroeconomics, Cebr. went on to say that “there are signs that small businesses are likely to make a significant positive contribution to UK growth”

With the news that the UK is coming out of the recession comes an increase in confidence amongst small business owners. Research found that “small businesses are raising their aims, with 5.4% aspiring to grow over the coming 12 months”. In order to do this, they’re going to need growth capital. Which is exactly what equity crowdfunding platforms are helping them raise, through matching them with forward-thinking investors.

Let’s not count our economic chickens before they’ve hatched, but we could be crowdfunding our way out of the red.

Jenna Taylor is the Content Marketing Exec at GrowthFunders. As well as blogging, eBooking, and informing, Jenna is a fierce advocate of the Oxford Comma.

GrowthFunders is an online equity crowdfunding and co-investment platform which matches ambitious entrepreneurs with forward-thinking investors.

Image supplied under a creative commons licence by lendingmemo

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