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THE SUNDAY TELEGRAPH - THE COMPANIES BENEFITING FROM THE CROWDFUNDING BUZZ

It has been a tiring start to 2019 for Joe and Sadie Sillett. The couple have been working round the clock to prepare for a fundraising that will propel the expansion of their household appliances brand.

“It’s hard work, but we’re very excited,” says Joe. 

They’re hoping to raise £250,000 via Seedrs, having already persuaded 160 people on the crowdfunding website to put up £330,000 for a 37pc stake so that they could launch The Funky Iron Company last year. They hope to bring another 300 people on board in the latest campaign this quarter.

“It offers more than just money,” says Sadie. The company’s “army of supporters” have so far provided product feedback and free word-of-mouth marketing, she points out. One investor who was experienced in consumer electronics was invited to join the management team and brought “invaluable” expertise.

Fledgling businesses are turning to crowdfunding in huge numbers. The practice surpassed bank finance to become entrepreneurs’ second-most favoured method of raising funds, behind venture capital, and one in five is considering it as their principal source of finance within the next 12 months, according to EY. 

Generally speaking, there are two types of crowdfunding: donations, and debt or equity. The former enables companies to raise money from financial contributions that are often rewarded by low-cost items, such as a branded T-shirt or limited-edition product. The latter, which is more popular in the UK, depends on contributions that are paid back with interest or take a small stake in the business in return. Crowdfunding is regulated by the Financial Conduct Authority and brokered by firms such as Crowdcube, Funding Circle, Kickstarter and Indiegogo. “It’s a very public way to raise money,” says Jeff Lynn, co-founder of Seedrs. Failing to hit your target “calls into question whether your vision can become reality”. “Preparation is everything,” says Joe. “Know your numbers inside out and have a three or five-year set of financials that are interrogated by an accountant.” A short video about you, the campaign and what an investor can expect in return is also key. 

Others fall down because they expect to sit back and watch the money roll in. “Do the hard work yourself offline first,” says Sadie. “The more backers that you can line up before going live, the better. Some entrepreneurs are getting it right. Last year Seedrs raised a record £195m from 186 pitches, and Crowdcube had 198 successful fundraisings.