Bure Valley Group is an investment introducer platform which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
For startups, access to funding is the typical bottleneck inhibiting higher potential growth. There may be a range of options, yet which route is best for founders (and investors)? Below, our team at Bure Valley Group focus on two key options – angel investing and crowdfunding.
By comparing the two, owners can gain more clarity about the best choice(s) for their businesses. Investors can also better understand which strategy (or strategies!) are ideal for their specific portfolio goals.
We hope this content is helpful to you. To learn more about our EIS projects and other early-stage opportunities, visit our portfolio page. For enquiries regarding our latest projects and funding, you can reach us via:
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What is crowdfunding?
At its core, crowdfunding involves raising finance for a startup, cause or project by collecting small contributions from a large number of people. Investors might ask for an equity stake in return, yet many prefer to lend the money in exchange for repayment with interest.
Due to the high volume of investors involved, this approach lends itself to crowdfunding platforms or social media. For instance, this can be done via an Innovative ISA, which allows investors to engage in peer-to-peer lending (P2).
What is angel investing?
Angel investing can be contrasted with crowdfunding in two main ways. Firstly, a smaller number of investors are involved. Indeed, a founder may only work with one angel, or two or three, to raise the capital they need.
Secondly, angel investors almost always ask for an equity stake in the business. For example, an angel might grant £50,000 to a startup in exchange for a 20% stake.
Naturally, this approach is limited to investors with more investable assets (e.g. high-net-worth individuals – HNIs – or “sophisticated investors”). They are likely to be entrepreneurs, business executives or wealthy individuals with industry experience and a strong network of connections.
What are the advantages of crowdfunding?
For founders, crowdfunding can be a great source of capital. Using the internet, they can access a global audience of potential backers.
Crowdfunding can also be a useful gauge of validation for their idea(s) – gaining more clarity about market demand. Feedback can then be used to refine products before founders invest significant time and resources.
This route can also be very effective for generating buzz, raising awareness and attracting attention to startup projects. Also, by focusing purely on non-equity forms of crowdfunding, founders can retain full ownership and control of their projects.
What about angel investing?
Crowdfunding may not offer the same “deep pockets” as angel investing. The latter can often provide the critical finance needed for founders to develop products, scale operations and expand into new markets.
Due to their considerable experience, angels can help founders make superior strategic decisions by bestowing their industry insights and connections. Often, angel investors adopt a “mentor” or “advisor” role to founders, increasing their success prospects.
Gaining angel investment also acts as a huge validation signal for the potential of a startup. Naturally, other investors gain more confidence to bequeath their own capital if they can see other prestigious angels have already given their stamp of approval.
Which option is best for founders and investors?
Founders will want to think carefully about how important retention of control is for them before seeking investment. Crowdfunding allows them to retain their full equity stakes. Angel investing will most likely not allow for this.
Conversely, founders can still retain a high degree of control even after granting an equity stake to angels. The key is for all parties to strike an appropriate balance which secures their respective interests.
An inexperienced founder, for example, may truly value giving angels a more active role in the business if they lack confidence (and knowledge) in key areas – such as strategic planning, marketing or product development.When considering the two options, investors need to ponder their preferred investment “style” and attitude to risk. For instance, one person may not be prepared to commit a large sum to a single company and have little interest in mentoring business owners.
In this case, crowdfunding might be appropriate since it allows investors to “spread out” their money across many investments and take a back seat regarding the running of the businesses. However, an investor with an appetite for the “Dragon’s Den-style” of investing may want to consider entering the world of angel investing.
Angel investing offers more direct involvement with your investments – and, often, higher potential returns compared to crowdfunding. However, you need to be confident in the principles of investing before starting out – e.g. diversification and due diligence.
Being part of a professional angel investor network (like ours at Bure Valley Group!) is a great resource for current and aspiring angels to refine their craft and build robust portfolios which progress them towards their investment goals.
Invitation
Interested in finding out more about the exciting startup projects we have on offer to investors here at Bure Valley Group?
Get in touch today to start a conversation with our team and discuss some of the great investment memorandums we have available here:
+44 160 334 0827
