Pass the crisps round the crowdfunders please

Small and medium sized businesses are still struggling to obtain money from high street banks. Further evidence of this has just surfaced after figures were released on Monday for the Bank of England’s flagship “Funding for Lending” scheme launched last June with the brief to offer banks cheap funds in return for this financing being offered to small and medium sized businesses, and showed that despite UK banks drawing down GBP 14bn, net lending has actually declined.

So the increasing popularity of crowdfunding as an alternative source of funds for small companies is timely in that it provides small businesses with other options if they can’t source funding via traditional methods. The concept of groups of people combining their resources to help a business is not new but the term crowdfunding was first coined in 2006, according to Wikipedia.

So it was interesting to read that a small UK business called InSpiral Visionary Products, the company behind a small vegan café in London, had raised GBP 250,000 via a crowdfunding website, Crowdcube,  in order for them to continue to develop their market for organic crisps made from Kale. According to press reports, the founders handed over 10 per cent of the equity in the business to a pool of 120 investors. Investors who, the founders are quoted as saying, “genuinely admire their work” rather than viewing it as an opportunity to make a quick buck.

And that is the whole ethos behind crowdfunding - the business raises money from investors who engage with the product or service the company is offering. It’s a clever way of raising the profile and marketing a company to a broader network of people, and as more often or not investors actually buy the product or in some cases are given one free in return for their financial backing, it can provide useful feedback to the supplier on their goods or service.

Thus filling an ever increasing need for funding from small businesses that have exhausted all other options.

Filed under: financing, funding, M&A, dealmaking