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Briefing: Start-up Funding Options

Any funding route is difficult - especially for a start-up with no proven track record or revenue generated by the vision you want to create. It’s difficult enough when you have these things. Add to this the inherent risk of investing through equity shares in a start-up and the picture becomes even more problematic.

The golden rule is whenever you are seeking funding clarify two essential questions first; 1) that you are absolutely clear about what you are doing with the money being raised (how much and where it will be spent) and, 2) why should an investor place their trust in you? Nail these two questions and you will be in a much better position when approaching the crowd for funding.

Like any investor the crowd essentially want to know:

·         Their capital will be returned

·         How much they stand to make on the deal

·         When?

The normal route to finding these answers is via the business plan. So being able to write a cohesive, coherent, concise and consistent document is fundamental to the start of this journey. In this plan the investor can see the outline of the business, the financial objectives and the accounting outcomes.

Before you approach a crowdfunding platform it might be an idea to get an independent person to look over the plan. Banks are one such source - if you ask them for money they will want to see the plan in its entirety. Banks will want to know what security you can offer against the loan.

If things go wrong they want to know that they can get at least some of the money back by taking possession and then disposing of these assets. Banks are also regulated with very tight bureaucracy and so the decision to lend or not can take some time to be reached.

A savvy business advisor will be able to tell you quite quickly if the business plan actually makes sense and if not then where the weaknesses in the plan are. Armed with a sound document you can now begin to approach equity crowdfunding platforms with an outline that will make sense to them and their audience.

Government backed schemes come in the form of awards or grants and these often have strings attached. For example if a local authority give you money to help build your marketing strategy, they may want you to stay in their jurisdiction for set period of time.

This is fine if you had no intention to move out of this jurisdiction in the first place but if you were planning a move three months after getting an award you may find you need to pay back the cash. Government backed schemes can also benefit your vision through publicity. They often want to promote the fact they have had the foresight to invest in a shiny new enterprise, especially one that is operating in a novel sector.

No matter the route you choose friends and family are still an important element to the funding mix, especially if you decide to crowdfund the vision. But relying on these for the total amount can be quite naïve on behalf of the entrepreneur. They may not have cash available at the time you need it, they may not want to invest in you or the project (but how do they tell you this without hurting the relationship?) or they may have other commitments that take priority at that time.

Either way relying too heavily on friends and family can create massive tensions that can negatively impact the business. Though they are needed in the campaign and although they might not be in a position to help you out financially they might be able to help spread the word about the project to their networks. Sometimes this is really helpful and can result in much broader networks becoming aware of the campaign.

Estimates of how much of the raise should come from these early funders range from 20 to 40 percent. But along with these individuals it is always a good idea to approach any high net worth (HNW) individuals in your network.

These HNWs might be business angels seeking to help a fledgling business get off the ground and spread its wings. Angels are different to friends and family as they are aware of the risks involved with such an investment and have probably been exposed to these before. In other words they know what they are potentially letting themselves in for.

They may also have been in the field or sector that you’re trying to penetrate. If this is the case then you have an even greater asset in your angel than you might realise - their network. This could be worth a tremendous amount to the campaign. In some instances more than the money the angel is investing. - Crowdfunding just got better!

Think you’re ready to start crowdfunding? Are you sure? Crowdfunding can be a demanding environment and being anything less than ready with a proposition that isn’t perfectly pitched can see poor response rates and a failure to get anywhere near your crowdfund target.

So, how good is your crowdfunding campaign? Do you truly know how the crowdfunding audience is going to react to your campaign? Really?

Crowdfunding investors are notoriously well known for being part of one of the most diverse markets in the world; the crowdfunding market can then make for a hostile environment and anyone who is less than a marketing executive can find themselves floundering in a realm of unpredictability. That is until now. Clarity Crowd is a game changer in the world of Crowdfunding and is set to shake up the way this previously intimidating market works. Are you ready to be part of it?

Introducing pre-crowdfunding

ClarityCrowd are passionate about the potential of crowd funding, but they also think that it’s an imperfect solution to real world business finance problems. That’s why their platform offers businesses and would be world dominating entrepreneurs the chance to gain invaluable insight into their crowdfunding campaigns before going live.

ClarityCloud - Your crowdfunding focus group

Clarity Crowd can be thought of as your very own focus group. It helps businesses on a daily basis in reducing the risks and unpredictability of the crowdfunding environment. It’s free to join and members can comment, vote and feedback directly to those testing their crowdfunding campaign.

From the ClarityCrowd community of enthusiasts you’ll receive feedback that can be the difference between global success and abject failure in the public eye. Their ideas and opinions can inspire, reassure and influence.

The nitty gritty of ClarityCrowd

So how exactly does ClarityCrowd work? Well it provides those who are almost ready for crowdfunding with a platform where they can test their campaign for two weeks. Essentially this serves as market research (as well as an all important confidence boost to the business owner in the strength of their idea).

Of course, the cream of the pre-crowdfund campaign crop will see a community buzz around their idea. With this comes the potential for a campaign to go viral prior to launch; and the timeless marketing principal of a product that’s in demand pre launch is the first step to a pretty smooth journey to success.

Clarity Crowd… Its simple, effective and its changing the way people crowdfund. Ready to craft your crowdfunding campaign and be more successful than you ever thought possible?

Sign up today and tap into the thoughts of crowdfund investors!

Entrepreneurs can post their campaign free until 00h00 (BST) 30th April 2014.

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