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Alternative Finance blog


Overfunded: Blessing or Curse?

1 year ago


 

Crowdfunding has played a huge role in helping businesses get the boost they need and gain the funds they need. Equity Crowdfunding is the same practice however; it involves the selling of shares within your business as opposed to products/promotions.

Now you would assume that the biggest problem when pitching your business/idea is not fulfilling your target, yes? Not always the case! With the Crowdfunding market growing at a large rate (410% from 2012-2014) the amount of investment fuelled into businesses is extraordinary, last year over £27m in the UK. The Market has become so accessible to everyone that anyone can invest. These factors have created a situation for some pitches which is the exact opposite of which one would worry about; overfunded campaigns. This is essentially disequilibrium in the market; the demand for the shares has exceled availability.

                                                                                                                                  

It’s a bitter sweet problem to have and can be overwhelming for the business, not to mention flattering. It’s of course reassuring; it shows that the business has a strong backing.  Of course you aren’t required to let your campaign be overfunded, but if given the chance and your target is reached early, it’s definitely something to consider.

 

You need to look at whether or not you want or need more investors? Could you do with extra funds or are you capable of reaching your goal with the original funds? Are you willing to give away more equity in your business or have you parted with a big enough share as it is? This is the most important thing to ask yourself. It’s great to have strong investors who want to see you succeed just as much as you want to. Some will even bring knowledge to the table or diversities that can help you reach your goals but how much are you willing to let in? Can you afford to give away a higher share of the business than you originally intend?

 

These are all the questions you need to ask yourself before making a decision:

  • Can I afford to give away a higher share in my business?
  • Do I WANT to give away a higher share in my business?
  • What can the extra funds do for my business and its expansion?
  • What will I be left with?
  • How much equity should I retain for future funding rounds?

 

Sometimes it’s a great decision to make. Take Levi Roots for example. Reggae Reggae Foods LTD received a £50,000 investment for 40% equity. Levi ended up giving away a higher percentage of equity than expected, okay he wasn’t ‘overfunded’ but he still had to make the decision on whether or not to give away a higher percentage of his business. 9 years later and Levi has a £30m business. The connections and expert knowledge that Peter Jones and Richard Farleigh bought to the table of course played a large role in the company’s growth, alongside a strong product.

The Crowdfunding industry is in a real boom. It’s rapidly going global and there is a high interest in the market from existing and new investors. Don’t forget, this is a highly risky and illiquid marketplace where many projects fail and investors can lose all capital invested, however it’s hard not to get swept up in the excitement of it all. Just look at Australia’s first equity Crowdfunding deal which just ended, raising $675,000 ($175,000 over their target). It’s a great time for start-up and ambitious businesses, just remember to look at what you are offering and make sure you are happy with your decision, sometimes it’s best to bite the bullet and open up. Who knows, you could turn your homemade sauce into £30m too!



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