Crowdfunding for startups – Seedrs takes off in Europe
Ask any startup in London about its biggest challenge and many will tell you it’s first round funding. This is the toughest capital to attract because venture capitalists usually want to invest big and angels don’t want to invest early. Micro-investing from the public through traditional means is also tricky, because the transaction costs of investing less than £10,000 in private companies is simply too high.
Given these obstacles, how are startups managing to get their ideas off the ground? For many, the answer is a crowdfunding platform called Seedrs. Founded in 2012, Seedrs was one of the first equity platforms to launch in Britain and the first to be regulated by the Financial Conduct Authority (FCA). It bases its business model on the assumption that most entrepreneurs only need a small amount of seed capital to prepare for their official launch or to win later-stage capital.
Seedrs makes it easier for anybody to invest online in a startup, with the added benefit of providing tax relief as well. Family, friends and independent investors can put as little as £10 into a startup company to help an entrepreneur raise up to £150,000 of equity capital.
Since its launch less than two years ago, Seedrs has grown rapidly, increasing its funding to over £4 million. It has attracted over 17,000 users and funded 27 campaigns, ranging from tech companies to brasseries and flexible office spaces.
Crowdfunding is becoming more mainstream and could become the single source of first round funding in the near future. However, independent investors should keep in mind that 90 percent of startups fail within the first years of operation.
If the general public wants to support a startup then they should also be prepared to also lose their money. A report commissioned by the British Business Angels Association and NESTA – reveals that even the most seasoned entrepreneurs often invest in a balanced portfolio of startups to cover their backs and that almost 40 per cent of them lose money overall.
Investing is like gambling – you can only hope you’ll strike lucky, so remember to only invest in what you can afford to lose.