As any entrepreneur will tell you, raising money to fund a new venture is difficult. There are a multitude of boxes to tick to satisfy an investor – the Team, the Strategy, the Industry, the Valuation, the Type of Share, the Exit, etc.
It should be no surprise therefore that Equity Crowdfunding has exploded in popularity over the last 5 years. What started in the US with a whimper in 2011 has now seen triple digit growth rates in the last 3 years. A recent change in US legislation this month whereby anyone can now invest in private companies, as opposed to having been an accredited investor with minimum net assets of $1m means we will now see another upsurge in activity in this area.
The UK has woken up to this as a mechanism for startups to raise funds quicker and cheaper over the last 3 years and activity in the industry in 2015 is expected to be 50% up on 2016.
One clear benefit of a company using equity crowdfundraising as a vehicle to raise new monies is the way in which a company can sell part of the company to the customers. For a B2C business, I can’t think of a better way to engender loyalty than having your customers as shareholders in the business. What better brand advocates could you have? I’m surprised we haven’t seen some more established companies do this to either raise funds for new products/territories or simply to take some cash off the table. Personally, I never sold a single share in any previous companies I established and that is a regret.
But equity crowdfunding democratises fundraising in a number of ways that are not immediately obvious. Up to now, funds would have traditionally been allocated to a business located in major city, in a business run by a man, in a hot sector, such as tech. As a male, living in a capital city and with a reasonable understanding of tech it is very easy to take this for granted. Online crowdfunding changes the dynamic entirely because everything is done online.
Today, a fundraising campaign launched by a female entrepreneur, living in a rural environment with a business idea in any sector with strong prospects has as good a chance (in theory anyway) of raising funds for the new venture on a crowdfunding platform as her male counterpart described above. I sincerely hope that when equity crowdfunding takes off in Ireland and we look back at the figures after 5 years that the playing field will have been truly levelled and democracy will prevail across genders, sectors and geographies. Don’t hold your breath!