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Crowdfunding is quite a revolution in the financial world. In the good old days, when entrepreneurs wanted to raise funds they had to either go to a bank, a VC or sniff out a potential investor with sufficient cash to spare. Crowdfunding has changed this approach completely.
A great way to put borrowers and investors together, with this way of working, even investors with only a small amount to invest can get a share of the entrepreneurial opportunities available. Crowdfunding also means that entrepreneurs can reach out to a wider audience to raise the funds they need to get their businesses off the ground.
Crowdfunding websites such as GoFundMe, Kickstarter, Crowdcube, and AngelList are just some of the funding options available to entrepreneurs as a real and attractive alternative to banks and VCs. These sites let entrepreneurs pitch their proposal to potential investors as well as giving investors the chance to browse investment opportunities to get a return on their hard-earned cash. Against the tough economic backdrop of the last decade or so, this way of funding start ups has been a real lifeline for many entrepreneurs.
But now that crowdfunding has been on the go for almost a decade, it’s evolving and there are new trends on the horizon that could change the shape of the crowdfunding arena for both borrowers and investors.
Here are what I believe to be 5 of the most significant trends on the crowdfunding horizon right now:
To date, investors who have engaged in crowdfunding have typically done so via their desktop. In order to widen the appeal and to reach out to a broader audience, the logical next step for crowdfunding websites is to go mobile. It’s a broadly accepted fact that people who carry out transactions on the move are more likely to share their actions with others (via the likes of the social media) and this will help crowdfunding become more mainstream in the future than it is right now.
Working with a wider community
In the past, crowdfunding websites worked pretty much in isolation, but there appears to be more and more evidence that crowdfunding sites are becoming more involved in the whole the business development process. Linking up with the likes of innovation centres, incubation centres and VCs means that crowdfunding can get more involved in the overall business process rather than just touching on one isolated part of it.
Starting to offer pooled style investments
To date, most crowdfunding websites have offered the chance to invest in single companies only. In the same way that inexperienced investors tend to favour pooled investments in the traditional investment world, the logical next move is for crowdfunding sites to offer pooled, portfolio type investments that help spread risk and take the pressure off investors when it comes to making their final decision.
Becoming more niche
While certain crowdfunding sites are populated with similar investment opportunities, the chances in the future are that we’ll see these sites becoming even more niche. It’s my view that these sites are likely to become more focused on specific industry sectors or geographical locations rather than on ‘entrepreneurs’ as a group. As more investors get involved, there’s also likely to be demand to segment investment opportunities in much the same way that pooled investment funds are segmented in traditional investments. The opportunity to invest locally is an appealing notion to many investors and I suspect that the crowdfunding sites may offer this as part of a niche marketing strategy.
Appearing more accessible
With interest rates at an all time low, it’s only natural that investors are looking for alternative ways to get a return on their cash. While many will continue to choose the stockmarket or traditional pooled investments, the increased accessibility of the likes of crowdfunding is likely to spread the word to a wider audience.
So what does all this mean for tech innovators in Scotland? The upside is that crowdfunding in the future should attract a greater pot of cash from potential investors. The only real downside is that if this happens, it may well be that you’re going to have to jockey even harder to stand out from the crowd of people looking for funding. The bottom line is; you need to get your story right to appeal to investors and get them to part with their hard earned cash. It’s tough; but it can be done.
About the Author
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