How Crowdfunding is Changing Business

How crowdfunding can turn a holiday idea in to business reality

For many startup entrepreneurs (and d-i-y investors who back them) the most significant form of modern day crowdsourcing is crowdfunding. Rather than trying to impress a single backer to support a business idea, perhaps through chasing a grant or bank loan, or by catching the attention of an elusive angel investor, crowdfunding has decentralized the process and enables business startups to ask crowds of people directly – some of whom they know and many they don’t – to each provide a relatively small level of support.  It also builds communities of followers and supporters, where customers become investors and investors become customers in a virtuous circle.

Favourable “light touch” treatment of equity crowdfunding (where investors pay for a slice of ownership of a business, and accept the risk that it may fail) by the financial regulators allowed the UK to emerge as the world’s market leader. Crowdcube was one of the first equity platforms to appear, in 2011, and it recently announced a total figure of more than £500 million invested so far in 700 funding rounds. The banking app Revolut and the Scottish brewery Brewdog, both currently worth over £1 billion, launched through Crowdcube.

Although some of the startups supported by crowds of sometimes relatively unsophisticated backers might be mocked by professional investors for some fanciful financial forecasts, many disruptive and challenger brands have emerged whose impact on established business sectors often far outweighs their market share or company valuations. Being new can mean a fresh approach unbound by a legacy of the past, even though a lack of a track record makes it hard to interest traditional investors at the beginning.

Here are examples in three business sectors where challenger brands used the power of crowds and are disrupting the status quo.

Banking
London-based Revolut, the UK’s fastest growing fintech company, ran a crowdfunding campaign as recently as 2016 to raise £1m and get started. Crowdfunding was also good marketing for them as it generated a core crowd of hundreds of investors who would become keen customers and brand ambassadors.

Crowdfunding is Changing Business

Revolut’s CEO and co-founder Nikolay Storonsky

The co-founders’ business idea came from their personal frustration with exchange rate markups, inexplicable foreign transaction fees and the overall hassle of managing a bank account abroad.

Today, Revolut provides over two million customers (two million customers acquired in two years!) with a debit card allowing the holders to spend money in 150 currencies with no fees. They estimate they have saved their customers over £560m in traditional banking fees, and in 2018 raised $250m through corporate investment which valued the business at $1.7bn (£1.2bn).

Brands like Revolut and fellow banking newcomer Monzo are definitely shaking up the traditional banks and changing customer expectations. The technology was there, but the existing high street banks still provided us all with slower, less sophisticated and more expensive services. With us all the way, are they?

Brewing
Behind Brewdog which is now a unicorn startup valued at over £1bn, there are many smaller craft brewers that continue to launch with modest funding and provide UK drinkers with a vast choice of beers and ales made with hands-on quality control and finer ingredients than high volume mass-market brands can access in sufficient volume.

Crowdfunding is Changing BusinessAn example is the fast growing Hop Stuff Brewery in south east London. City finance professional James Yeomans found he enjoyed home-brewing more than his time spent in the office and became determined to take it further. In 2013, without any commercial brewing experience – but he could talk “money” – he used equity crowdfunding through Crowdcube to raise £58,000 in exchange for 34% ownership of his startup craft beer brewery.

The business grew, and alongside attracting corporate investments it ran a second round of equity crowdfunding that closed in January 2017, and then a third smaller one in early 2018. Although corporate investors were by now queuing up for a slice of the business and crowdfunding was unnecessary for purely financial reasons, crowdfunding has provided Hop Stuff with a dedicated following of over a thousand supporters happy to perform unofficial Brand Ambassador roles. They influence people to sample the brewery’s products through positive word-of-mouth, and ask pubs and bars where they drink to stock them.

Hop Stuff is currently opening a number of its own “beer and pizza” bars under the Taproom brand, filling a global order book and signing overseas franchise brewing agreements. Compare this to the rest of the UK beer trade: the British Beer and Pub Association (BBPA) recently reported annual sales were 1.7% down, and in August 2018 the BBC reported UK pubs are closing at a rate of 18 a week. Hop Stuff Brewery is certainly bucking the trend, has just moved to larger brewing premises, and five years after launching with £58,000 raised through equity crowdfunding it is valued at over £25 million.

At an invite-only event for his crowdfunding investors in August 2018, founder James Yeomans announced that packaged Hop Stuff Brewery products will soon be on the shelves in London branches of Tesco, Oddbins and Majestic Wine.

Grocery items
Bamboo is a fast-growing sustainable product with four growth cycles a year. Tissues made from bamboo rather than paper are naturally stronger, softer and more hygienic. They can be made with a 65% smaller carbon footprint.

Crowdfunding is Changing BusinessWho created and introduced this breakthrough eco-friendly product to the UK? Was it corporate giants Kimberly-Clark or Procter & Gamble that own market-leading worldwide tissue brands? No, it was a pair of UK holidaymakers who returned home from China, researched possibilities and wrote a business plan to utilise abundant supplies of unwanted surplus bamboo they had seen being left to rot.

A modest reward crowdfunding project on the Crowdfunder UK platform with a target to generate £10,000 of orders gained the attention of a crowd of early adopters and, by chance, an angel investor. Within three years the founders of The Cheeky Panda tissue company ran an equity crowdfunding campaign with Seedrs that raised £500,000 and valued their business at £5m. The brand is a top seller on Amazon.

So even in the high-volume fmcg sector (fast moving consumer goods) dominated by massive brands that are supported with multi-million £ advertising budgets, crowdfunding – the crowdsourcing of both money and a community of supporters – enables entrepreneurs to introduce innovative products and disrupt existing markets.

Mayor of London Has £1m For Community Projects Using CrowdfundingIf you are considering crowdfunding as a means to launch a startup, or maybe to grow an existing business, I can provide you with independent crowdfunding advice and hands-on support. I have no ties to any particular crowdfunding platforms. Please email me, [email protected] Let’s discuss your ideas and set about building them in to a plan of action.

10 Tips on Reward Crowdfunding from a Tech Startup

10 Tips on Reward Crowdfunding from a Tech Startup

Hribarcain is a newly founded UK technology company that was launched on the crowdfunding platform Kickstarter in 2016. After starting in a small design studio in Bristol their first product launch was “Magno, The World’s First Magnetically Controlled Pencil.” They then developed a range of titanium pens and expanded internationally to provide products to thousands of customers worldwide, raising over £250,000 in revenue. As an SME marketing and crowdfunding specialist I was keen to meet the company founders at a recent networking event and hear more of their story.

Co-founders Ashley Hribar-Green and Matthew Aston Cain are British entrepreneurs with a wealth of experience in product design engineering. After working for one of the largest technology companies in the world (Dyson), Ashley and Matthew launched Hribarcain to pursue their dream of designing products that challenge convention as a result of ground breaking innovation. In this case it began with a range of magnetically controlled propelling pencils with a subsequent brand extension in to pens.

10 Tips on Reward Crowdfunding from a Tech Startup

Rewards crowdfunding allowed Hribarcain to promote their products direct to end-user buyers without first needing retail distribution agreements. They also used Indiegogo in 2018 for a campaign with US dollar pricing, whereas their Kickstarter campaigns have been priced in UK pounds.

Matthew already had previous experience from using reward crowdfunding on Kickstarter to generate orders for his range of Astoncain minimalist watches with top quality components and functions at a reasonable price. At a recent networking event in London organised by Masterclass Crowdfunding, he happily shared 10 top tips based on his seven years’ experience of using reward crowdfunding.

1.      Have a clear and concise video that runs under 2 minutes – it’s your business card. This is his advice after sometimes using longer running videos.

2.      Advertising – use some! Let people know you’re crowdfunding

3.      At the close of the project don’t simply just fulfill the reward item orders, up-sell to the buyers. In Magno’s experience it can add a further 15% sales income

4.      Make your pricing attractive, reduce it to create urgency within the limited time period of your crowdfunding project, maybe to 50% of RRP

5.      Possess a clearly defined USP (Unique Selling Proposition) to stand out from competitors

6.      Use quality photography in your crowdfunding project. It will help to enhance the image of your product or service and reassure people you’re serious about what you’re offering them

7.      Only use quality, reliable manufacturers who won’t cut corners and reduce the value of your items

8.      Price in a minimum 50% margin to allow for mistakes and to afford some marketing (see Point 2)

9.      Consider fulfillment delivery costs right at the start of selecting reward items and maybe opt for smaller, lighter ones, or at least smaller packaging to meet postal rate sizes

10.  Find other crowdfunding project owners who have complementary products, such as matching up pen makers and notebook suppliers, or maybe cooler boxes and food and drink providers, and agree to co-promote each other’s products to your respective networks.

10 Tips on Reward Crowdfunding from a Tech StartupAll of these are great pieces of advice, though there’s also a lot more to consider. If you are considering using reward crowdfunding yourself then please get in touch via [email protected] for us to meet, either in person in London or maybe on Skype, and discuss your ideas and how to effectively plan for success. You can also follow me on Twitter, @Cliveref.

Successful Equity Crowdfunding On A Shoestring

Successful Equity Crowdfunding On A Shoestring

When Joel Burgess studied Mechanical Engineering he had little idea he would one day almost single-handedly raise over £190,000 through equity crowdfunding to launch Nutrifix, an app that combines convenience food with nutritional advice and signposts where to find a meal to suit any specific nutritional need. Joel describes his equity crowdfunding as the hardest work he has ever had to do in his life. Thorough preparation was the secret to his success.

Background
Joel’s personal story is that he was a very competitive rugby player, though had to give up the game due to a serious injury. As sports people sometimes do, Joel continued for a while with the same diet but he wasn’t burning off as many calories. He took advice to redesign his diet, though was rather non-plussed as to how to maintain the correct protein, fats and carbohydrate balance when faced with the array of items available in salad and sandwich bars and restaurants. A simple mention of the calorie content of each menu item wasn’t enough.

So to help stay in shape he researched and built himself a spreadsheet based on food and meals from a range of outlets he used. The results were evident, and when Joel found 10 people were prepared to pay him £75 for a copy of the spreadsheet he began to think this level of traction showed him he might have a worthwhile idea for a business startup. He decided to develop it as an app to be more functional and interactive. He started that in September 2016 and it launched in January 2017.

Preparation before crowdfunding
Joel also built up his social media following and engaged with potential users. He discovered he had a very keen audience to test and trial the app before it was released, and in time went on to reach over 1,000 users before spending a penny on marketing.

Further encouragement came when Just Eat contributed £20,000 seed money after Joel pitched to them during London Food Week. They also invited him on their first food tech accelerator: they bought into him (people buy people!) and the problem his app was trying to solve, and the size of the market made it a viable commercial opportunity.

Support from a recognised backer, in this case a high street name, always reassures small retail investors who believe that the company’s legal team will have undertaken a thorough due diligence, and that it’s safe to get behind the startup. Joel really leveraged Just Eat’s support during his crowdfunding that followed.

A friend worked at the equity crowdfunding platform Crowdcube and so that was pretty much the extent of deciding which platform to use. Working with Crowdcube, Joel spent a lot of time on his business model and creating a P&L statement. The platform drilled right down to check any claim he was making as part of their due diligence to safeguard investors’ money.

Another pal offered to make his video for him at a reduced rate, and again Crowdcube were there to help by checking his video script avoided any false or unsupportable claims.

In the pre-crowdfunding period before his campaign went ‘live’ Joel created the majority of the social media and email content he was going to send out, with images filed and ready, and spreadsheets of financial projections and cash flow forecasts if these were asked for. He prepared to use every touchpoint available to him, including Facebook, Twitter and LinkedIn.

His preparation also included creating a list of what he imagined were going to be the most Frequently Asked Questions, and came up with answers. This way, Joel was able to answer most questions quickly with a ‘copy and paste’ technique, and to be on the safe side he added to the list every new question that was put to him, with the answer that he gave.

He was also in no doubt as to how vital it is for a crowdfunding campaign to start with a bang rather than a whimper, and he set about meeting contacts to encourage some early support. Reaching around 30% of target in the first few days, certainly at least 20%, is generally regarded as essential to create momentum and impress other investors who may otherwise be more inclined to stay sitting on the sidelines. Crowdfunding can’t be done totally online, there is still a need for some vital face-to-face personal selling.

Crowdfunding delivers more than just money
Joel’s high level of preparation meant that when the crowdfunding was ‘live’ his diary was free enough to fix meetings with potential investors who wanted to meet him, and to speak at a couple of events Crowdcube organised for him.

This part of his journey was a real emotional roller coaster. Some investors said they really liked his idea and business plan, others tore him apart and made him sometimes wonder if his dream might collapse rather than become a reality. “This is where you discover your inner resilience, you have to rise to the challenge and be ready to impress the next potential backer.”

The crowdfunding target was £150,000. In the end Joel overshot his target by 29% and raised £194,310 from 375 investors (an average investment of £518) in exchange for 24.46% of his equity. This meant he had a business that the public crowdfunding process had given a market value of £485,000. Through his crowdfunding campaign he had also grown his user network to 750 and gathered 3,500 social media followers. Effective crowdfunding is effective marketing.

And finally, Nutrifix now has a network of active investors, and many have become brand advocates who are keen to help it grow through positive word of mouth and other more direct assistance when contacted. Joel keeps in regular contact through monthly e-mails, and also reaches out to them when he needs some particular help or wants to make new contacts.

Does Marketing need marketing to startups and SMEs?

Does Marketing need marketing to startups and SMEs?
At #IoTUKInvestorDay on July 17 I heard 10 tech startup entrepreneurs with a business related to The Internet Of Things pitching to raise in most cases hundreds of thousands of pounds. Several wanted to make a transformational step by setting up Sales & Marketing teams and start B2C marketing. Sounded like some scaleup work opportunities for nimble marketing professionals.

Does Marketing need marketing to startups and SMEs?

Although it’s hard to be certain in a quick-fire series of five minute pitches, a repeated inference to the potential investors in the audience seemed – to me – to be “we’ve done the hard yards getting this far with our invention/discovery/vision/app/idea, and now all we need to scaleup is [your] money to pay for some marketing, then sales will inevitably follow, and we’ll all be sharing the rewards.”

The marketing function with its complexities and uncertainties was mentioned almost as an afterthought, even though it would be the untested new element in the mix to take some of these companies on a transformational step to the next stage of their development. One speaker had indeed used up his allotted time without getting to what a large chunk of the money he was raising was going to be used for – so he settled for an almost dismissive “marketing and all that jazz.” This shows little regard for the skills and expertise required to organise and execute effectively an organisation’s marketing and contribute to achieving its overall business goals. It thus also underestimates a good marketer’s value to an organisation.

Should the marketing profession, perhaps through its representative bodies like The Marketing Society and IDM (Institute of Direct and Digital Marketing) market the business discipline of Marketing to the entrepreneurial, startup, SME sectors?

If you are an entrepreneur with a business you want to either startup or scaleup and would like to understand more about benefits and opportunities provided by reward, equity or debt crowdfunding then please get in touch, [email protected]. I am an independent crowdfunding adviser, not affiliated to any particular platforms. I have over 30 years of varied marketing experience and have specialised in crowdfunding for the last three – making me almost an industry veteran!

How crowdfunding can turn a holiday idea in to business reality

How crowdfunding can turn a holiday idea in to business reality

Let me guide you through the inspiring journey of The Cheeky Panda, a business idea to make toilet tissue from bamboo pulp that started on a 2015 holiday in China and then used rewards crowdfunding to test product viability and financially de-risk setting up a company, plus much more. Successful equity crowdfunding completed in August 2017 has given the company founders a business valued at over £5m.

The founders of The Cheeky Panda are Chris Forbes and Julie Chen, based in Essex. In 2015 they took a holiday to China for Chris to meet Julie’s family. They couldn’t help but notice huge quantities of unused and unwanted bamboo lying around. Bamboo is a grass not a tree, and grows so fast there are three crops a year. Local communities had a requirement for only 10% of the bamboo that grew around them, and how to develop a commercial opportunity from the 90% literally left lying around became something that intrigued Chris and Julie.

How crowdfunding turned a holiday idea in to a business realityTheir eventual idea was to make tissue paper, and the first version was toilet rolls. This was a great choice, as tissue made from bamboo pulp rather than paper is stronger, softer, and naturally more hygienic. Their idea also had strong economic and ecological benefits: it would create work, benefit the local ecosystem to clear away some of the surplus bamboo being left to rot, and making tissue from bamboo produces a 65% lower carbon footprint than making it from trees or recycled paper.

Beginning the manufacturing process for a first trial quantity needed an order for a minimum viable volume, and without any distribution outlets lined up for an as yet unproven product it would have been a gamble to go ahead. Rewards crowdfunding de-risked the process.

A six week campaign on Crowdfunder in early 2016 required £10,000 of donations and pre-orders to trigger the first production run. If support didn’t reach this level there would be no obligation to fulfil any pre-orders, and it would tell them their idea wasn’t such a good one after all. And without product validation Chris and Julie would have put their entrepreneurial efforts in to other business ideas instead.

The volume of toilet tissue they would receive from China would be enough to meet the crowdfunding pre-orders – priced at just enough below the cost of premium paper products to be attractive yet provide a sufficient yield – and give Chris samples to take to potential retail stockists. This really emphasises they were using rewards crowdfunding as a stepping stone to launch a business, and not using it as an end in itself as a limited project to just make a quick and short-term return as a side issue.

Success could transform their lives, and they believed it was worth some considerable effort. While continuing with their regular jobs they put in an estimated 20 hours of work a week for four months to product research, planning and eventually execute their crowdfunding campaign. And they set aside £2,500 to make an animated video, create a website and conduct their marketing.

Their marketing strategy relied on stunts, parties and personal appearances, always wearing their photogenic Cheeky Panda hats to generate media coverage How crowdfunding turned a holiday idea in to a business realitythey amplified through their website and social media. They also courted relevant trade and professional media, and through a flexible content plan achieved coverage in Management Today and FMCG News (fmcg = fast moving consumer goods, a “must read” for anyone in the supermarket business) as well as local media in Essex, the Daily Mail and Huffington Post. I met Chris and Julie at an event at Brand Exchange, a business networking club in The City, where their distinctive headgear invited people to approach them.

My contribution of independent crowdfunding advice to their already well-advanced efforts was to suggest a corporate angle, to approach Chinese companies based in London such as Cathay Pacific airline as potential customers, and to contact the Chinese Business and Social Networking organisation, which Julie signed up to within a few days.

In reality, they had left little to chance. Chris had used his contacts and business skills to personally pre-sell their new product and gain pre-commitments to begin their crowdfunding with high impact. Strong early support creates momentum and confidence to encourage other unknown people to become involved. By just eight days in to their six week crowdfunding campaign on Crowdfunder they had hit 67% of their £10,000 target.

Their further marketing efforts closed the campaign on a high as they reached almost £13,000 of orders and donations. As a crowdfunding backer I received an e-mail with an expected delivery date of my ‘reward’ (45 rolls!), but then received a second one to say there would be a delay. It was for a very positive reason, they were changing from cheap plastic to biodegradable packaging.

This was affordable, and would be a positive note for longer-term reputation and growth, after a financial backer who had tracked their progress asked to be involved in the company. Their rewards crowdfunding with its well-planned and professionally executed marketing had also found them an angel investor.

In summary, The Cheeky Panda team invested £2,500 and lot of effort in a rewards crowdfunding project that achieved:
• Product validation from 67 backers who supported them to the tune of £12,785 of donations and pre-orders;
• A visible media profile in local and national press, general business management and specific supermarket retail media, and online in ecological and current affairs platforms;
• Stock samples for discussions with retailers and other stockists;
• An angel investor.

The Cheeky Panda range has now expanded with facial tissues, their products are available on Amazon and through a number of ‘health stores’, and I gather they are currently (as at March 2017) in negotiations with a major supermarket chain.

September 2017 update
In August The Cheeky Panda ran an equity crowdfunding campaign on the Seedrs platform. Based on a pre-crowdfunding company valuation of £4,653,000 they were seeking to raise £350,003 in exchange for 7% equity. They over-funded and reached a figure of £521,314. With this amount added to the pre-crowdfunding valuation The Cheeky Panda is now a company with a value exceeding £5million. Quite a stunning achievement given the co-founders had a business idea on a holiday just two years ago.

What do you do with inspired business ideas you have on holiday? Please share them with me, in confidence, if you’d like some independent and objective insight on using crowdfunding. Let’s assess the viability of using some form of crowdfunding – whether rewards, equity or debt – to make your dream become a reality. It could change your life for the better, like it has done for Chris and Julie at The Cheeky Panda. Drop me a line at [email protected]

Crowdfunding sessions at a major European crowdsourcing conference

Spread throughout the four full days of speaker sessions and panel discussions at the Crowdsourcing Week Europe 2016 conference in Brussels November 21-25 there were a number of sessions dedicated to crowdfunding. As an independent crowdfunding adviser they were naturally of great interest to me, and here is a summary of them I’d like to share.

fredic-barkenhammarFredrik Barkenhammar of House of One told us on the first day of conference about his crowdfunding project to raise money for something truly unique – building a mosque, a church and a synagogue under one roof in central Berlin. This will be a multi-denominational house of prayer and interdisciplinary learning, bringing together people of different faiths to share experiences and get to know each other through dialogue. Even people with no religious focus are welcome.

He is running open-ended crowdfunding asking for a €10 contribution for each brick – and the project will cost €43.5m. That’s a lot of bricks! His project is a stand alone, it isn’t hosted on a crowdfunding platform, there is no cut-off date, and the project keeps all donations. In these respects I guess it’s more like JustGiving than what we usually categorise as crowdfunding, though in simple terms he is asking the crowd to fund the project.

brussels-beer-projectSebastian Morvan and Olivier de Brauwere started the Brussels Beer Project (a brewery) in 2012 to shake-up Belgium’s conservative brewing sector. Through a number of rounds of donations-for-rewards crowdfunding via the Beer For Life platform they have received support from almost 2,000 crowdfunders.  The formula is simple: each crowdfunder receives 12 beers, every year for the rest of their life, in exchange for €160. Watch the video here. Thanks to that support, they were able to start their venture in 2013, fund their brewery in 2015, and after the last round ended on 31 January 2016 they were able to recruit more talent and invest in more equipment.

Their website says: “Not only the financial support but also the positive energy we received from this beautiful community has been overwhelming and will bring us even further. We don’t have the means of Big Industrials – so the enthusiasm and word of mouth permitted us to take on this adventure and look into the future.”

They continue to involve their crowdfunders with pop-up beers, one every two weeks, at their open evenings (Thursday to Saturday) at the brewery. Based on this crowdsourced feedback they decide which ones to go ahead with on a commercial basis. One that got the thumbs up from the crowd was a beer made with soda bread. This had the added benefit of recirculating 10 tonnes of unsold soda bread that would have otherwise been thrown away.  They are also asking their crowd to propose beers for them to brew. They have so far received 150 suggestions and the winner will be able to go to the brewery and be involved in making it.

The first day also included a panel discussion titled “Are VCs Getting Disrupted by Crowdfunding?” It wasn’t much of a contentious debate, as Bill Morrow, CEO of angel-led investment platform Angels Den made the points that there is no reason to compare venture capitalists and crowdfunding since they operate within distinctly different funding levels. Most businesses using crowdfunding are looking for far less than VCs would consider as a minimum investment.

Walter VassalloOn the second day of the conference the economist and entrepreneur Walter Vassallo, co-founder of internet company MC Shareable in Monaco, gave a talk under the heading Crowdfunding for Sustainable Entrepreneurship and Innovation. One of his key points was that crowdfunding is so much more than simply getting funded. An effective crowdfunding project also increases awareness among wider stakeholders: project proponents; project investors; policymakers, regulators and the related research community.

A new book he has edited pulls together contributions from different authors to try and identify key factors that influence crowdfunding success, and create a validation tool that can assess the viability of crowdfunding projects before they run. The average success rate on Kickstarter is 37%, he said, so there is clearly room for improvement. Copies can be ordered here. A full copy will set you back $205, though individual chapters are available at $37.50.

img_4239The third day of the conference focussed on energy and sustainability issues. The energy market shift to decentralisation and renewable sources dramatically lowers the industry entry cost for new producers. However, investment to fund new energy initiatives and bring them to fruition can often be an issue, and Dr Chiara Candelise of Ecomill – an equity crowdfunding platform in Italy – told us about Smart Financing and Empowerment: Crowdfunding in Energy. Her global study of energy crowdfunding shows that 80% of the money raised has come from loans and equity. For homeowners unable to switch to a renewable or a more sustainable energy supply, crowdfunding renewable energy projects is a further way the crowd can stimulate this market and show their support for alternatives to the established major energy producers.

cedric-donckEntrepreneurs always face funding issues. Cedrick Donck, business angel and co-founder of the Virtuology Academy told the conference on the final day that angel investment and crowdsourcing are increasingly popular routes. Bringing an angel investor onboard has benefits of access to their experience and contacts as well as their money. Crowdfunding could be used to raise further money on top of an angel investment, or maybe use crowdfunding on its own if for some reason you don’t require an experienced mentor.

He echoed previous speaker comments when he said positive by-products of crowdfunding include: increased visibility as effective crowdfunding is also very good marketing; you gain access to the personal networks of all the investors; and it raises your credibility to be able to say you raised money from the crowd. Downsides are that you may have been able to raise more money than the business is really worth as early investors may lack experience. This could present problems if further fundraising is needed later and the value is scaled down. And finally, you may lose some competitive advantage because you will have had to put your business strategy in to the public domain.

Picture-of-CliveIf you are considering crowdfunding, whether on an equity or a donations basis, please get in touch for an objective conversation with me, an independent crowdfunding adviser. My background is marketing rather than financial, and I can help with essentials such as building a big enough crowd of the right sort of people to drive to your crowdfunding project. Or maybe you know someone I could assist who is considering raising money to launch a startup, expand their business, or support a favourite worthy cause. I’m at [email protected] and my tweets are at @Cliveref. Thank you.

“Best Funding Solutions For SMEs” – a conference in London in May 2016

Best Funding Solutions for SMEs

This event in east London’s Mile End Road explored a comprehensive range of funding options available to SMEs, including equity and debt crowdfunding. I attended in my capacity as an independent crowdfunding adviser. Here is my summary of key points from the day in four sections:

A)  An approximate, overall market background of funds secured by UK SMEs in 2015

B)  The range of funding opportunities available to SMEs

C)  Concerns for SMEs to be aware of when raising funds to grow

D)  Insights on successful equity crowdfunding

A) Overall market background

Best Funding Solutions for SMEsMatt Adey of the British Business Bank presented an overview of the funding landscape, the trends and latest figures available on financing SMEs in the UK.

Many small and medium size business owners, particularly in early days, prefer to bootstrap their way through rather than commit themselves to any obligations to third party finance providers. The extent of using someone else’s money may be restricted to existing bank account overdraft facilities or credit cards – which are already in place and immediately usable click resources.

61% of SME owners that do go further use just one source of external finance and in most cases that is their bank. Bank lending to SMEs is recovering, said Matt Adey, despite the continuing groundswell of media comment to the contrary. What clouds the picture is that high street banks are cutting overdraft facilities, according to Bank of England figures, whilst at the same time making more funding available through loans.

Awareness of other sources of finance is growing, as shown by research conducted for British Business Bank. Almost half of UK SME owners were aware of crowdfunding as a source of finance when the research was carried out in October 2015.

B) The range of funding opportunities available

    1. Asset-based lending
      This is effectively peer-to-peer pawnbroking, securing short-term loans against assets provided as security, as explained by Richard Luxmore of Funding Secure. No business plan or cashflow projections required, just an asset the lender will keep if you don’t make the repayments.
    2. Stock market flotation
      Companies in the EU can be as large as up to 250 employees and a turnover of €50m and still be an SME. Nick Parker, FD of newly floated Yu Energy took delegates through his recent personal experience. Yu Energy floated on AIM in March 2016 based on a turnover of £3.9m the previous year.
    3. Bank loan
      The biggest source of SME funding and on the rise, explained by Ian Warren, Senior Lending Manager at NatWest Bank. Total bank lending is increasing, though to some people it doesn’t seem so because overdrafts for SMEs are being cut.
    4. Peer-to-peer lending
      Best Funding Solutions for SMEsThis sector was represented by Jasper Ehrhardt, MD of Funding Knight, and Maria Samayoa, Production Manager at rebuildingsociety.com. SMEs generally have to show a minimum two year trading history.
    5. Equity crowdfunding
      Best Funding Solutions for SMEsThis sector was represented by two platforms: Frank Webster, Campaigns Director at Seedrs and James Sore (pictured), Chief Investment Office at SyndicateRoom. They both stressed that crowdfunding is no easier way of raising money than any other method. The sector has brought opportunities back to the general public to make direct investments in businesses. It is highly regulated, though investors still have to take responsibility for their decisions and conduct due diligence.
    6. European Union
      Chris Farmakis, EC Funding Manager at GLE Group, explained that through the Enterprise Europe Network they can provide EU funding for “highly innovative SMEs with a clear commercial ambition and a potential for high growth and internationalisation.
    7. Pension-led funding
      Best Funding Solutions for SMEsAnthony Carty of Clifton Asset Management pointed out that corporate pension funds are mainly invested in equities, in companies. So why not invest your own pension in your own company? They verify that it makes sense, to the extent that just 1-in-5 applications are authorised. This process can take three months. If you make it, you can get the government benefits from putting money in your pension, and then put it to work for your business. “It’s like having your cake and eating it,” said Anthony.
    8. Invoice discounting
      Explained by Helen Mackenzie of Platform Black. You can get a high proportion of an invoice’s value very quickly rather than wait for however long it’s going to take to get paid the normal way. Obviously a business has to be trading to have some invoices, so it doesn’t help startups. Platform Black particularly want to work with businesses over two years old with a minimum £500,000 turnover.

C) Concerns to be aware of when seeking funds to grow

  1. Your personal and business credit rating.
    Martin Mitchell and Jamie Allan of Experian highlighted the importance of making your credit score attractive to investors. This included checking for unknown County Court Judgements against an individual or their business. Simple things like paying bills on time improves a credit score. Click here for further information on access to monthly or annual reports.
  2. Intellectual property protection and ownership.
    Best Funding Solutions for SMEsSeeking investment involves telling your secrets, advised Clive Halperin of GSC Solicitors. Make sure what you tell people can’t be copied or stolen. There are trademarks, copyrights, patents and design rights. Make sure you understand the differences and use the most relevant one(s). Also, investors will not be keen if the business does not own its own IP. So don’t try to be clever and own it separately somewhere else.
  3. Shareholders agreements.
    This was also covered by Clive Halperin of GSC Solicitors. Shareholder agreements have to look to the future, not just reflect the present. Give yourself room to manoeuvre if a business partner stops pulling their weight. Allow for death, incapacity and for simply wanting to do something else instead. Consider all circumstances of share transfers, issuing new shares, restrictive covenants, deadlock resolution procedures, and more.
    Best Funding Solutions for SMEsAnd as Bill Morrow, CEO of Angels Den later added: “If you sign anything [i.e. a shareholders’ agreement] and you don’t know what the likes of ‘tag and drag clauses’ are then you will not survive.” Don’t totally rely on advisers, make sure you actually understand it all.
  4. Secure EIS and SEIS tax advantages for investors.
    Founder and CEO of P2P lender Startup Funding Club, Stephen Page, explained the value of these tax break schemes for investors. Business seeking investment should be ready in advance, particularly if the end of the tax year is looming.

D) Insights on successful equity crowdfunding

  1. It requires and dedication time to identify, locate and get in front of enough potential investors to find the one(s) who will back your business.
    Best Funding Solutions for SMEs
    Frank Webster, Campaigns Director at Seedrs (pictured) said: “To raise money, get out there and talk about it [your business]. To potential investors there is nothing special about your business. They’ve heard it all before. So share it.” Or as Paul Grant of The Funding Game put it: “You’ve got to kiss a lot of frogs to find a prince.” He reckoned that on average it takes 50 approaches to find an investor.
  2. Share your idea, don’t hold back, and don’t expect people to sign an NDA before you tell them about your business idea.
    To reinforce what Frank Webster of Seedrs said, Stephen Page, founder and CEO of Startup Funding Club said: “I’m not going to sign over a thousand NDAs a year. I know what we talk about is confidential. Investors aren’t going to steal ideas, it’s not what they do.”
  3. When you do find a potential investor who shows interest, don’t rush things.
    Best Funding Solutions for SMEsDon’t immediately give a potential backer too much information. No one is going to stop what he or she is doing to read your 25-page business plan e-mail attachment on the strength of a brief conversation you had the previous day. “Investors have to be wooed,” claimed Roderick Beer of the UK Business Angels Association. “Don’t ask to marry them on the first date,” advised Paul Grant (in picture). Personally, I’d say don’t make yourself sound desperate as it can put people off.
  4. You need a team
    Investors will be wary of a one-man band, no matter how much of a genius you think you are. All the people from Seedrs, SyndicateRoom, Angels Den, Funding Knight, Invesdor and Startup Funding Club supported this point.
  5. Don’t rely on your Business Plan
    Best Funding Solutions for SMEs
    Investors will want to know you have prepared one, but as to how accurate a plan for a startup can ever be is acknowledged as a mystery. What’s more important, said Stephen Page of Startup Funding Club (pictured), is knowing what your cash flow is going to be like, and how long it will be before you need to raise more funds. And as the person who has had the great idea for your business, if you can’t write your own business plan you will be dead in the water, said Bill Morrow of Angels Den.
  6. A mentor can be more important than money.
    Money can be raised later, because maybe what’s needed first is a mentor with experience and contacts in the business sector you want to operate in. Jonathan Pfahl, Founder of Rockstar Hub International said they can effect introductions, and Bill Morrow of Angels Den said they even train their investors on to how to be better mentors. That’s why, he claimed, 94% of the companies that have raised funds through Angels Den remain trading.

If you are considering a crowdfunding project, whether equity or donations-for-rewards, I am an independent crowdfunding adviser with a marketing rather than a financial background. Please contact me about anything to do with identifying and building your own crowd of backers, and underpinning your crowdfunding project with an effective marketing campaign to get noticed and deliver results.

Clive Reffell, Comanche Communications and Marketing

Ten tips for anyone changing their career path

Last year’s Office of National Statistics figures revealed that just 53% of the UK’s working population are fulltime employees with a regular pay cheque. More and more of us are choosing, or being forced by circumstances, to adopt alternative ways of funding our existence. The outcome can range from worries over simply paying basic bills to affording an enviable, comfortable lifestyle.

I’ve learned that whether starting up in business as a small-scale entrepreneur of any age, or as a local provider of professional services, downscaling from a dazzling corporate career, or on the verge of what could be a great money-making venture, many of us all share the same feelings.

Much of my networking in the first few months of Comanche Communications & Marketing was at a local SME level. I met many people who are or have been in similar circumstances to myself, setting out in business as a sole trader and trying to carve out a modest niche among the opportunities available within the accessible business community.

Then I found myself networking in different company when I spent a day at the third annual Great British Workforce Revolution conference. These events are tailored around opportunities for former company directors to ‘go it alone’. This can mean starting a new business, investing in other people’s new businesses, or taking interim roles to guide companies unable to afford their experience and knowledge on an fulltime basis.

A forum of former ‘captains of industry’ made some useful comments about the attitudinal re-think needed when making a career transition that are worth sharing with anyone who takes responsibility for their own destiny. Many people using crowdfunding hope it’s going to make a significant impact on their lives, but are they really ready for some of the consequences?

The key ten points the panel made were these.

  1. It’s scary to be in a new place. Doing new things, outside of a comfort zone that may have previously been full of support, is scary.
  2. Most of your previous contacts become useless because they were part of that former comfort zone, that former life.
  3. It’s difficult to achieve a target daily pay rate, so do what comes up that looks like it would be good to be involved with.
  4. But don’t forget that time is your most precious asset, particularly if starting a new enterprise later in life.
  5. Reconsider the people who you know. Build connections among a new group of people who are going to be able to help you.
  6. Think about how to help them, not only how they could help you.
  7. You should remain curious and love learning. Which is now easier than it ever was with the range of material available through the internet.
  8. Add practice to your knowledge, by simply getting out there to start providing others with the benefits of your knowledge and skills. Even do it free for a local charity rather than keep them to yourself. This will help teach you how to best present that knowledge in a way that builds confidence.
  9. Confidence is what your new customers or investors will recognise and buy in to.
  10. Work with people you like, who respect you and pay you on time. Life’s too short to do otherwise.

The Panel, left to right below: Steve Gilroy, Chief Exec at Vistage International (UK), the world’s leading Chief Executive organisation and main sponsors of the conference; Stuart Lucas, a former global finance high-flyer and Founder and Co-CEO of Asset Match which allows shareholders in unlisted companies to freely offer their shares for sale; Peter Collier, Executive Director and Founder of TCWM Ltd, held senior positions in the financial services sector until 2012 when after voluntary redundancy he started a business by taking small consultancy assignments; Robin Hill, Founder and CEO at Ruffena Capital Ltd, previously had senior positions in technology and media businesses. “It’s better to be more in control in a smaller company than lost in a big one,” he said.

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If you’d like to explore crowdfunding as a way to help you change your career path and want some objective advice and support then please get in touch. Drop a line to me at [email protected].