After her daughter was born in 2010, meetings were scheduled around nap times at her kitchen table-cum-desk. Her efforts paid off: Righteous dressings are now stocked in big supermarkets such as Tesco (TSCO.L), and turnover grew to around 120,000 pounds ($190,100) in 2011, from 10,000 pounds the year before.

Yet of all the hurdles the 33-year-old has faced since quitting her job mid-recession to set up her own company, the most challenging - and arguably most crucial - is the one she faces now: funding the future.

Like more and more small- and medium-sized firms in Britain, she is turning to the public, not the bank, for financing.

"The business has now got to a level where we are being distributed nationwide ... the problem is that I don't have the personal budget to really come up with a big campaign to tell more people about it," Misa told Reuters, clasping her hands around a cup of coffee on a cold February afternoon.

"We are in the middle of such hard economic times and it is so much more difficult to get a bank loan. ... the interest rates are a bit too high to really consider it."

With small businesses struggling for financing as banks rein in lending, and individuals facing poor returns on their savings and volatile financial markets, companies are increasingly looking to a kind of grass-roots public offering system known as crowd funding -- and finding a throng of willing investors.

The idea originated in the United States as a way of funding creative projects, with backers given rewards such as a free album or entry to an exhibition. But now entrepreneurs are extending it to offer members of the public a stake in their business.

Misa hopes to raise 75,000 pounds through Crowdcube.com, which gives people the opportunity to invest as little as 10 pounds in return for a piece of a small business that could be the next big thing.

The concept is catching on fast. Since it launched a year ago, 11 deals have been successfully funded through Crowdcube, the largest raising 1 million pounds. It now has nearly 9,000 members and attracts between 10,000 and 15,000 visits a month.

"There is certainly a funding gap and there is a demand there to plug that," Luke Lang, one of the site's co-founders, told Reuters by phone from the company's base in Exeter, southwest England. "We are really trying to democratize investment."

The Internet has undoubtedly made it possible to reach investors on a much wider scale, and similar sites are popping up to offer loans in this way, known as peer-to-peer lending.

Funding Circle allows people to lend directly to small firms in the UK, providing companies with lower cost finance than they could get at a bank, and giving members of the public returns which, for its last 100 loans, ranged from 4 to 15 percent.

That compares to average monthly interest of 0.21 percent on instant access accounts for UK households in January, according to statistics from the Bank of England, and a return of 2.55 percent on fixed rate bonds with a maturity of one to two years.

SOMEBODY ELSE'S CUT

As with all investing, there are risks - particularly buying shares in a company with little or no track record. There is no guarantee the businesses will succeed and there is a chance investors could ultimately lose some or all of their money.

While Funding Circle's default rates are low -- 81,500 pounds of more than 24.6 million pounds lent -- neither crowd funding or peer-to-peer lending are covered by Britain's Financial Services Compensation Scheme, a last-resort for customers of authorised financial services firms which fail.

authorized But for the investors who have taken a punt so far, the attractions have proved enough to justify the risk.

Many of the offerings on Crowdcube fall under the government's Enterprise Investment Scheme (EIS), which gives investors a 30-percent tax break on the cost of the shares, provided you invest at least 500 pounds and hold the shares for at least three years.

Others are motivated by investing straight into a business.

"It is an attraction to have an idea directly of what you are putting your money into," said one investor, a retired man from the outskirts of London who asked not to be named.

"If you are going to trust an investment to a fund you are really bouncing around on what people are doing in the City," said the former tax inspector, who put 5,000 pounds into an EIS offering by film studio and costume business Sands Films.

Sands hopes to raise nearly 2 million pounds to help it buy the 19th century former granary warehouse it has occupied since 1975 and avoid being turfed out by developers.

The company, which employs just 20 staff but has worked on a string of blockbuster films making outfits for stars like Keira Knightley, is selling shares direct to the public, relying on word of mouth rather than an intermediary like Crowdcube.

Owning the enchanting labyrinth of rooms packed with rolls of material, work benches, props and rail after rail of outfits is vital for Sands's future, Paris-born Olivier Stockman, co-owner of the business, told Reuters.

"The uncertainty of not knowing whether we could stay in this building has made development difficult," he said, his slim glasses perched atop a head of shaggy grey hair.

For investors who have put in an average of around 3,000 pounds each, avoiding broker fees has been a draw.

"If I put it into funds there is somebody taking a percentage off here, there and everywhere," said John Lavery, a 58-year-old retired government lawyer, who invested some of his redundancy payout into the Sands offering.

"Any gains you make these days are likely to be taken out by somebody else's cut. This way I have a straight investment so I am much happier."

On Crowdcube, investors do not pay to invest through the platform, and companies pay a 5 percent fee to the site only if they hit their fundraising target.

POTENTIAL LEGAL ISSUES

With Britain's top banks falling short of government targets to lend to small businesses, the Conservative-led coalition is looking closely at ideas like crowd funding as it aims to boost alternative forms of funding.

It is extending the EIS from April to offer tax relief of 50 percent to those investing in early stage companies, and in December Business Secretary Vince Cable set up a taskforce, led by Tim Breedon, chief executive of life insurer Legal & General (LGEN.L), to examine the various methods of non-bank funding.

But for now, the growth of crowd funding is likely to be limited by the lack of clear regulation.

"There are still huge legal issues about issuing securities to the public in most countries," said Armin Schwienbacher, professor of finance at University of Lille 2 and SKEMA Business School. "Unless the regulation changes it is going to be relatively difficult."

Businesses fear falling fowl of the complex set of existing laws, and with no universal rules around how much information companies have to disclose, investors lack protection.

Britain's Financial Services Authority regulator does not have a specific set of rules in place for crowd funding, so far judging each example on a case-by-case basis.

And with things running smoothly so far, the legal robustness of crowd funding, and the online platforms that facilitate it, has yet to be tested in court.

"If you start on a platform to have some scandals because the entrepreneur did things they were not supposed to do, then the platform may relatively quickly collapse," said Schwienbacher.

Similar concerns have been raised in the United States.

Earlier this month an advisory committee told U.S. securities regulators it needed more time to study crowd funding to ensure it did not lead to investment scams.

For companies looking to grow, crowd funding will go hand in hand with other fundraising methods, rather than replace them, said Schwienbacher, adding that it would continue to work best where money was not an investor's main motivator.

"To make it successful you need to establish a community which is excited about your company," he said. "It is easier to convince people who are fans.

"Most individuals are not able to assess the risk and return of these investments. From a financial perspective, it is not yet clear whether it is better to buy a lottery ticket or buy shares in these companies."

($1 = 0.6312 British pounds)

(Editing by Sonya Hepinstall)

• A Permanent Economic Emergency