Tech startups across the board are facing tough times. Data from Beauhurst and the recent State of European Tech lay out the full extent of how swiftly the fundraising landscape has altered in the last 12 months and the rather bleak outlook for the year ahead.
Overall deal volume in the UK dropped by a staggering 24%, with value (£ raised) down an even more eye-watering 57%. This is the first published evidence of something we all expected was coming with the current economic downturn – startups are struggling to raise money right now. On top of this, The State of European Tech report ended the year by highlighting that over 80% of Europe’s founders and C-level startup execs found raising cash got harder this year, while many also said this was taking longer.
There is an outlier to this trend, though. Equity crowdfunding deal volumes have been cushioned from the extreme blow felt elsewhere in the investment ecosystem, only dropping 7% in 2022. At Seedrs, we actually expect to do MORE deals in 2022 than in 2021 based on the current forecast!
Equity crowdfunding also overtook angel investment as the second most popular source of funding, only trailing venture capital/private equity.
So why is this the case? Do businesses turn to equity crowdfunding in tough times, and what are the benefits?
There are certainly a few advantages to equity crowdfunding when it’s harder to raise investment.
Firstly, equity crowdfunding, at its core, is the combination of all possible sources of investment under one umbrella. The platform obviously provides a source of investors that are looking for opportunities, but what a lot of people don’t consider is that it’s a great way to get friends, family, professional contacts and angel investors interested.
1. It’s friendlier to tell people about a link to a campaign page rather than pitch them directly for investment.
2. It’s easier for people to invest. Prospective investors can invest online, processing the investment directly from their card/bank account, and reviewing documentation through a seamless user journey. It’s a bit harder to do this on an email chain or at a pitch meeting!
3. Investors care about whether other people are investing. They can visually see the momentum in the campaign on a crowdfund.
That last point is especially important right now. Investors can be forgiven for thinking everyone is keeping their cash in their pockets. After all, institutional firms are sitting on ‘dry powder’ as they are more cautious with their pounds. There is still liquidity to deploy for the right deal – so why not show them that your deal is different!
Secondly, it’s a great way to engage a community – and there’s no other way to turn your customers into investors. Crowdfunding allows you to unearth brand ambassadors by giving them an opportunity to invest. It’s also popular to offer investors rewards for investing (eg: 25% off this year), which can engage money-conscious investors in a mutually beneficial opportunity. Fewer businesses are marketing at the moment as they focus on profitability, and crowdfunding can be an excellent excuse to shout about your brand at a time when your competitors are keeping quiet. The businesses turning to crowdfunding at the moment often appreciate this opportunity and see the advantages.
Lastly, and this is a Seedrs-specific point, we have multiple ways to raise funds. We also have an Anchor Service (if you’re a scaleup after institutional capital) and a Private Dealroom (for HNW and Angel Investors). Often, we’re doing hybrid rounds now where businesses will use multiple services (eg: Private Dealroom and then a crowdfund). This just improves your chances of raising the cash you need to grow as a business, and any efforts to improve the probability of a successful raise at the moment should be considered.
Things are harder, there’s no doubt about that. But we’re open for business with the attitude that every client is in a partnership with us. We’ll do anything and everything to improve the likelihood of founders having a successful raise.
In paid partnership with Seedrs.