All over the start-up world we’re starting to see entrepreneurs using equity crowdfunding, or “crowdinvesting”, to seek their next round of funding. These new business owners are all asking their friends, family and the wide world to give them money in exchange for shares in their company.
Unfortunately, most of the people they’re approaching haven’t a clue what this all means – or what they really get out of it.
So since we are running our own equity crowdfunding campaign we thought we might just explain it a little more by answering a few common questions.
What is crowdfunding?
You may have already encountered crowdfunding before – the idea that anyone in the public can put in money into a project and get some sort of “reward” for it. It has been used worldwide to get financial support for all sorts of projects from play productions to book launches to new technology to massive art installations.
The power of this concept is that project creators no longer need to convince an elite group of the very wealthy to make their idea a reality. In fact, it’s created a world where the individual with less disposable income has much more power to decide the kind of art that gets funding, the kind of products that go from prototype to production, and, generally, the kinds of projects that get a real chance at success.
It’s democratic funding rather than aristocratic funding.
Crowdfunding puts the power in the “crowd” – and subsequently gives projects more pressure to be socially conscious as they now have a whole lot of everyday people who have put in their support and are watching their moves.
What is equity crowdfunding?
Most crowdfunding involves giving supporters some sort of material reward. This could be a pre-purchase of the product being made, some piece of art related to the project, or whatever other creative awards the project creator could think of.
With equity crowdfunding instead of getting something material, you get equity in the business that you’re giving money to. Essentially what that means is that, you get to own a piece of the company.
Let’s look at this with a real example. In our crowdfunding campaign, we’re giving away 13% of FOF Travel for £120,000. That means if you decide to invest just £10 in our company through this campaign, you’re buying 0.00108% of our company.
That doesn’t sound like a whole lot does it? But let’s look at it this way – if we do reasonably well, our valuation may go up to something like £5 million. That means that you own 0.00108% of a £5 million company. That means your £10 is now worth £54. If we do a bit better, and get valued at £10 million, you’re looking at your £10 becoming £108.
If we do as well as something like AirBnB, which is valued at about $13 billion (£8.3 billion), then that £10 investment becomes £89,917!*
What are the risks involved?
Understanding the risks involved in investment is very important. While our success would be your success when you invest, you also have to realise that our failure is also your failure.
What that means is that any money you put into a business you’re crowdinvesting in is at risk of being lost – if the company fails. And most startups fail.
You should never put in any amount of money into a crowdfunding campaign that you’re not prepared to lose, because there’s a good chance that you won’t get a return on it.
There’s also the fact that when you buy into a company, you may not always be able to find someone to buy your shares back from you when the company becomes successful. You may find that you can only sell your shares when the company is bought by another company or floats on the stock exchange.
So why should I support a business through crowdfunding?
Well besides the possible return on investment should we do well, you’d also be participating in a system that empowers the people.
When companies are backed by crowdfunding, they’re not beholden to just a few shareholders who have chosen to put their wealth behind them. Instead, they’re answering to a whole crowd of people that have put their hand up to say, “I believe in you.”
That kind of pressure encourages companies to be more socially responsible, practice business more ethically, and also to take actions that benefit real people and not just focused on making money for their few shareholders.
FOF Travel isn’t just equity crowdfunding because we like the idea of sharing our company with anyone who wants in. We’re doing this round of investment through the crowdfunding process because we believe it’s a better way for our company to connect directly with the people we’re serving – and we want to support a system that encourages other companies to do that too.
Ok, I want to support FOF Travel through equity crowdfunding. How do I do it?
On Seedrs, it’s easy. You just sign up, answer a quiz – that just makes sure you understand the risks of investing – and then you’re ready to rumble.
Unfortunately, due to complicated financial regulations, right now we can only accept crowdinvestment from those who have some sort of residency status in the UK or Europe.
If you are from elsewhere in the world and would like to invest, please contact us at firstname.lastname@example.org to let us know.
Visit our campaign to support FOF Travel now on Seedrs.
Other crowdfunding platforms generally behave in a similar way to Seedrs – the process is pretty straightforward and explained very clearly.
If you’re struggling, or want to know more about Seedrs, visit our step by step guide here, or check out their FAQ section.
I want to express my support, but I’m way too broke to even afford £10. What can I do?
We get it. We’ve definitely been there. And we, ourselves, don’t put any of our own money into a crowdfunding campaign, or a charity, unless we’re 100% behind it.The money you earn is precious, and you should be very cautious about where you spend it.
If you don’t think you can afford to put in the investment at this stage, but you still believe in the idea and want to be a part of this then please – help spread the word! Crowdfunding needs to reach “the crowd” and to do that, the campaign need people believing in it, and sharing it. So if you want to help someone who is crowdfunding, please share!
Share the FOF Travel campaign:
Click here to share on Facebook
Click here to share on Twitter
Click here to share on Google+
Click here to share on LinkedIn
Click here to share on Pintrest
If you’re excited to start using our new app as soon as it’s live, sign up to our list to get updated when we go live so you can be one of our first users. We promise we won’t email you except to update you about FOF Travel.
I still have more questions…
If you’re still unclear about equity crowdfunding, then check out Seedrs FAQ – they’ve got a lot of answers there. Otherwise also feel free to get in touch with us personally at email@example.com to ask us anything about the FOF Travel crowdfunding campaign.
Click here to check out the FOF Travel crowdfunding campaign on Seedrs and either support us directly, or help spread the word!
*Note: The example above is an analogy based on absolutely no dilution taking place. It is likely that in order to increase our valuation we will need to issue further rounds of funding to help scale the business. This is normal and often starts with a start-up’s first big Series A Venture Capital Investment round. Should this happen, everyone (including us) gets diluted in proportion. However, the actual value of your shares/percentage ownership would have increased in the process.