- Crowd funding matches entrepreneurs with members of the public who are keen to invest
- Enterprises pitch their business plans to potential investors online
- UK-based Crowdcube has so far helped SMEs find almost $450,000 in equity funding
Small and medium size businesses (SMEs) struggling to convince banks to loan them money are turning instead to the masses, in a new strategy being called crowd funding.
It works like this: Enterprises pitch their business plans to potential investors online. It allows for a large number of people to contribute smaller amounts, rather than a SME needing to attract a couple of big investors.
Crowd funding for businesses is a relatively new idea. Government regulations across different countries can make it difficult, but the concept is growing in the UK and the Netherlands, among other countries.
The practise has been previously used by organizations such as charities, but the internet has allowed for more people to get involved. Darren Westlake, co-founder of the UK-based Crowdcube, says this form of investment will grow. He believes it will, within five years, be a common way to raise finance.
"Crowd funding has been around for some time, where people invest in art or music and get a print or DVD in return," says Westlake. "This is the first opportunity to invest and get proper shares."
Crowdcube has been operating for around six months and has so far helped SMEs find almost $450,000 in funding.
Luke Lang, Crowdcube co-founder, says for too long entrepreneurs have had to go cap in hand to wealthy individuals to gain equity. "We're very keen to democratize investment," he says.