Equity Crowdfunding and Venture Capital Working Together

Equity Crowdfunding and Venture Capital Working Together
Not so long ago it was still quite common to come across articles that tried to pitch VC investors and equity crowdfunding supporters and platforms against each other, as if every startup business entrepreneur faced a binary choice of which investment route to pursue. There are growing signs that the complementry rather than competitive nature of these sources of startup and scaleup business funding are beginning to be appreciated.

Many startup founders seek investment budgets that are beyond the resources of friends and family backers, yet are too small for VCs to normally bother getting out of bed for. And if a business is in its earliest days without a trading history or future sales orders, there’s precious little hope of securing a business loan, whether from a traditional source like a bank or from a peer-to-peer lender such as Funding Circle. So there is a true gap in the business investment market that equity crowdfunding occupies, at the same time as providing better returns for small-scale investors than they can get from high street deposit accounts or investment schemes.

It remains fair to say that equity crowdfunding is not yet a fully developed entity due to the small number of exits that have allowed investors to reap their rewards: the UK Crowdfunding Association’s website has just one solitary case study (though there have been more). Other business finance commentators harp on about the startups that still fail, sometimes within months of raising seven-figure sums through crowdfunding, as if crowdfunding ought to provide some mystical defence shield against business failure.

Despite these shortcomings, the rude health of hundreds, even thousands of startups around the world that have traded equity for an investment from a crowd of backers supports enough confidence for the practice to continue to grow and spread.

It has now reached a point where venture capital firms are not only taking notice but some also want to be involved. In the UK, for example, the startup support division – called G – of the global accountancy firm Grant Thornton works with the equity crowdfunding platform Crowdcube.

It is a symbiotic relationship: Crowdcube can offer its clients a longer business development path than just realising their earliest investment rounds, and Grant Thornton gains an entry point to build relationships with promising entrepreneurs before they are big enough to usually be worth their attention. G also offers to make introductions to some of its network of investors who have indicated they are open to the idea of making early seed-stage investments. Here is an example of this co-operation in practice.

GunnaEquity Crowdfunding and Venture Capital Working Together is a range of uniquely-flavoured, craft-made soft drinks which aims to disrupt the established carbonated drinks marketplace in a similar way that craft beer has. It retails at a competitive price for a product made with better quality ingredients, and contains less than 5% sugar to be part of a healthy lifestyle. In 2018 it was available in over 3,500 UK stores, sales were up 300% on the previous year, and their highly experienced founders wanted to raise funds to accelerate the growth rate.

Initial discussions with Grant Thronton indicated that £500,000 would be appropriate to build distribution through recruiting additional sales people and investing in trade marketing. Although this amount is below Grant Thornton’s minimum threshold, their growth finance team remained involved to get Gunna investment-ready to run equity crowdfunding via Crowdcube to raise the money.

Support from some cornerstone investors who wanted to get involved at the ground level, introduced by Grant Thronton, strongly reassured a crowd of smaller retail investors. The equity crowdfunding project generated £819,150 from a total of 245 backers. As Gunna grows it’s likely there will be a need for further, larger rounds of investment which will meet Grant Thornton’s VC-backing criteria. Gunna’s hoped-for exit strategy is acquisition by an international drinks company.

A less formalised example is that of a business founded in 2013 that recycles surplus fruit and vegetables to make traditional recipe relishes and chutneys, Rubies in the Rubble. They were able to gain investment backing from Mustard Seed, a VC fund that takes a principal investor role in world-class early-stage businesses that generate compelling financial and societal returns.  However, beyond accepting £160,000 from Mustard Seed, the founder of Rubies in the Rubble, Jenny Costa, used it as cornerstone funding to launch an equity crowdfunding project on the Seedrs platform.

A rule of thumb has evolved based on empirical evidence that successful crowdfunding projects ought to start with very early pledges of at least 30% of their financial target. This is achieved through personal pre-selling by the project leader and their team to guarantee – as far as possible – that their project starts with a bang and not a whimper. This creates momentum as it gives vital confidence to what are usually smaller retail investors who require some reassuring encouragement to take the plunge.

Equity Crowdfunding and Venture Capital Working TogetherRubies in the Rubble set a target raise of £300,000, in which Mustard Seed’s investment easily covered the 30% requirement. By 3 June 2019 the project on Seedrs has easily surpassed the initial target and wss overfunding at over £535,000.  The funds are to support the launch later in the year of a mainstream ketchup product and a vegan plant-based mayonnaise. The business aim is to capture 3% of the UK ketchup and mayo market by 2023, whilst continuing the fight against food wastage. A trade sale is the most likely exit strategy.

Please get in touch for further insights and support on how you could use crowdfunding to raise money to startup or scaleup your business, plus reap the benefit of numerous other advantages. I’m an independent crowdfunding advisor, not tied or affiliated to any particular platforms: [email protected]

A “Surveillance Capital” Market Sells Our Personal Behaviour Data

A "Surveillance Capital" Market Sells Our Personal Behaviour Data
Surveillance Capitalism is a name for the process through which the likes of Google and Facebook use their knowledge of our personal experiences as a free source of raw material. Without asking us, they convert it to behavioural data, combine it with their vast proprietary capabilities in machine learning and AI, and out of that come predictive patterns on what we are going to do and how we are going to behave under given circumstances. They sell this predicitve information in to a new kind of marketplace that trades exclusively on future predictions of our behaviour.

The author and Harvard Business School professor Shoshana Zuboff was labelled “the true prophet of the information age” by the Financial Times for her groundbreaking book, “In the Age of the Smart Machine,” a seminal work on the social, economic, and emotional consequences of computer technology published back in 1988. She is currently on an international tour to promote her latest book that took her seven years to write called “The Age of Surveillance Capitalism: the fight for a human future at the new frontier of power.” It’s a warning against unfettered manipulation and use of data we all freely, albeit sometimes unwittingly provide, and I was fortunate to catch up with her on her book tour in London.

Surveillance Capital was pioneered by Google in 2001, a time when the dotcom bubble had burst and they were under money pressures, as a way to use what they termed “digital exhaust” – their leftover data after helping advertisers to get us to click through on their online advertising. After 2001 advertisers no longer chose, they were told where their advertising would appear, scheduled by a “magic, black box of tricks.” And the advertisers must have found it was working. From 2001 to 2004 when Google went public through its IPO, their net advertising revenue grew by a staggering 3,590% (it’s on page 87 of Zuboff‘s book).

Off the back of it, future “click behaviour” has become a predictor of all behaviour. Our private and personal behaviour has been brought in to a marketplace where it is bought and sold over and over again, and we have no idea who has it or what they are doing with it.

It’s a model that was increasingly copied by tech startups as a way to speed up and maximise monetisation, and virtually everyone is doing it. Think of all your online purchases, it’s all data about you that’s packaged up and sold. And major players in other industries want to get a share of this market as well. In 2015, Ford CEO Mark Fields started speaking about how the company was thinking beyond making vehicles to being more of a transportation analytics company. They had data on 100 million Ford vehicle users around the world – where they went, what they ate, what they watched, and so much more. He wanted to combine this with financial data from Ford Credit and start to match the price/earnings ratios of Google and Facebook. 

Many of us have been dismayed and somewhat shocked, perhaps too naively, by revelations that identifying groups of key people and influencing their decisions through feeding them selected information – which may not be true – has impacted disproportionately on major political decisions. I’m particularly thinking of President Trump’s election and the UK referendum decision to leave the EU. A major theme of the best seller Homo Deus is that democracy is based on the free will of people to make up their own minds and vote accordingly, but what if that “free will” is corrupted by access to only a limited amount of the news, or even fake news?

A "Surveillance Capital" Market Sells Our Personal Behaviour DataBut what can we do? Boycotting search engines, all social media and anything else that captures personal behavioural data in an age of digital mass connectivity isn’t a viable option if we’re going to remain part of our communities. In February 2019 the German Chancellor Angela Merkel closed her Facebook account, though still uses Instagram. And the siren calls of the Internet of Things are beckoning us to go further, deeper.

Google has launched Nest Thermostats. Home temperatures can be controlled via smartphone to improve efficiency and comfort and reduce bills. It sounds good. The thermostats can also be used as a hub to connect to all other IoT devices in the home. However, all the behavioural data picked up from every device is sent to a myriad of third parties, who sell it on to even more. Zuboff reckons anyone would need to check up to a thousand privacy contracts to know what’s happening to the data the thermostat users provide for free.

And you can’t just click on “Don’t Agree” to their privacy policy, because then your thermostat won’t work. There isn’t a Nest-lite, or a Facebook-lite, or a “lite version” of any privacy policies that you can click on to say you don’t want your data used but you still want the product to function.

I’ll mention another new book, “Zucked: Waking Up to the Facebook Catastrophe” by Roger McNamee who has been a Silicon Valley investor for 35 years. A piece adapted from the book appeared recently in Time Magazine.

Tech has been McNamee’s career and passion. He had been an early adviser to Mark Zuckerberg and an early investor in Facebook. Their drive for monetisation has overwhelmed everything else and he was particularly disappointed in 2016 that Facebook only came clean when forced to, and revealed as little information as possible, “when confronted with evidence that disinformation and fake news had spread over Facebook and may have influenced a British referendum or an election in the U.S.”

Monopolistic dominance of the tech markets by Facebook, Amazon and Google has enabled them to build no-go zones around their core operations, he says, by simply buying up any competitors before they can have an impact on their bottom lines. He suggests government protection and even subsidies for tech startups, limits on the markets in which these Big Three are allowed to operate, and that individuals should be allowed to own their own data and decide for themselves who’ else is allowed to use it.

Will any of that happen? There was a public movement against the worst capitalist excesses of the Industrial Revolution, with the formation of trade unions and the development of workers’ rights that became enshrined in law. The time has come, believes Zuboff, for a similar response by people who share privacy, political and psychological interests regarding the negative aspects of the Information Revolution before it becomes too late.

Five Nominees Remain in International Crowdfunding Award

Five Nominees Remain in International Crowdfunding Award

The public online vote for entries in the international BOLD Awards, launched by Crowdsourcing Week, has closed leaving five nominees in the Crowdfunding category – as well as in each of the other 11 categories.

The main factor each entry had to satisfy was that they had achieved something significant beyond reaching or exceeding their financial target, whether it was a donations-for-rewards project or equity crowdfunding. Here’s a run through of the final five nominees.

Borrow a Boat

After they launched in 2016, I met up with the startup team at the London Boat Show in January 2017. Almost all privately-owned pleasure/leisure boats remain unused for the majority of their lives, moored up and incurring charges in commercial marinas or yacht clubs, while the cost of boat ownership remains prohibitively expensive for the majority of people.

Borrow a Boat connects people wanting to enjoy boating with boat owners who welcome a contribution to the cost of ownership. Through working with partners they have standardised requirements for qualifications, experience, insurance, boat safety, and charter contracting. This has made the whole process simpler and more accessible for people wishing to enjoy recreational boating.

Borrow a Boat ran an equity crowdfunding campaign on the UK-based Crowdcube platform at the back end of 2017. Against a pre-fundraising company valuation of £1.2m they set a target of £200,000 which was smashed when 688 backers invested £468,880 in exchange for 28.1% equity. This was an average of nearly £682 per investor and valued a 1% share of the company at £16,686.

In January 2019 a second round of equity crowdfunding, again using Crowdcube, raised just £20 short of £1.5m from 564 investors for 30% equity. This was an average of £2,660 per investor and valued a 1% share of the company at £49,999.

Last year 18 million people in the UK wanted to go boating, but only 4 million did (source: British Marine Federation, Futures Project). Borrow a Boat has transformed the boat charter business through creating an affordable entry route to open the pleasures of sailing and motor boating to a much wider audience that seeks life-enriching experiences, while providing an income stream and safeguarding the interests of boat owners. They now have over 16,000 boats available for hire via an app that’s used in 60 countries.

StartupItalia

This is the largest Italian community dedicated to startup founders and investors. A team of 20 talented people in Milan and Florence creates a daily newsletter with crowdsourced content from 600 contributors and it’s sent to 50,000 subscribers.

They also organise the largest Italian event dedicated to the startup ecosystem and have plans to launch the largest digital training academy for the professions and new businesses of the future. Additionally, they want to create a 3,000 square metre space for a newsroom, with 8,000 square metres for events and networking and 1,000 square metres for training, in a former factory building in Milan.

Their current equity crowdfunding project on Mamacrowd.com closes March 31. To date almost 1,700 backers have pledged over €2.25m.

Tam Development llc

There is a growing number of Saudi youths who are facing problems in finding a job or starting a new business as they have grown up in a rather undemanding and cosseted lifestyle to be passive, unconfident, and inflexible.

Tam Development LLC was established in 2012 with the purpose of engaging and activating the public and helping them reach their full potential, and has successfully designed and implemented over 50 local and regional projects in partnership with 20 government and private entities in Saudi Arabia and the wider Arab region.

They provide access to the range of expertise required to execute startup initiatives from start to finish through Jasarah, a crowdsourcing and initiative management platform that enables users to flexibly engage the public at large plus targeted groups of specialists to help create, manage and deploy challenge solutions that meet global standards in fast-paced advanced technology.

Scribit

Scribit is an intelligent writing robot that ushers in a new way of presenting digital content, makes it possible to instantly reconfigure and personalise a wall – whether it’s a storefront, an office lobby or your living room.

Any vertical surface can be transformed into a screen where images, messages or feeds are projected through an ‘always-on’ web connection, allowing you to download, upload or source any content from the Internet, or use your own content. Applications include restaurant daily menus with changing availability, stock market prices, art displays and sports results updates. Checkout here the video from their Kickstarter campaign.

Their Kickstarter project in 2018 generated $1.6m of pre-orders from 4,352 backers.

RAPPLER

Rappler  is social news network of stories in the Philippines that inspires community engagement and digitally fuels actions for social change. Rappler comes from the root words “rap” (to discuss) + “ripple” (to make waves). Readers are encouraged to contribute to crowdfunding projects set up to address some of the issues raised in its content, and to also actively contribute to supporting independent journalism and press freedom, through its crowdfunding and e-commerce platform.

The five nominees here and in each of the other BOLD Awards categories will now be studied by an international panel of judges. They will make their decisions on who are the winners in time for an award ceremony at a black-tie gala dinner in Venice, Italy, on 5 April 2019. A few remaining event tickets are available to spend an evening with award winners, category and event sponsors, and the Crowdsourcing Week team and some of its investors.

UK-based Food Sharing App Targets $1 Trillion Annual Wastage

UK-based Food Sharing App Targets $1 Trillion Annual Wastage
Half the food wasted in the UK is thrown away at home. In total, a third of all the food produced in the world is wasted. It represents an annual value of $1 trillion and it’s one of our planet’s greatest problems. There are millions of people who don’t have enough, deforestation to create grazing and arable land afflicts ecosystems for farmers to produce too much, and animal methane gases contribute to global warming and climate change.

Co-founders Tessa Clarke and Saasha Celestial-One knew each other from their MBA studies at Stanford Business School where they became firm friends. They hatched an idea to start OLIO in 2015, an app to connect neighbours with each other and with local businesses so surplus food can be shared, not thrown away. This can be fresh or packaged food nearing its sell-by date in local stores, spare home-grown vegetables, bread from a local baker, or the groceries left in the fridge when people go away.

They launched the OLIO app in 2015 and now have almost 25,000 volunteers operating in over 50 countries. I met Tessa recently and she kindly agreed to share her story with me.

How did you first test for public support of your idea to engage the crowd in a breakthrough solution?

We carried out some market research using SurveyMonkey and we found that 1 in 3 people are “physically pained” about throwing away good food. We then set up a WhatsApp group with 12 people and found they were very enthusiastic about sharing food that would otherwise go to waste. From that we received incredibly valuable feedback and suggestions.

With the support of our first investor we built the MVP (minimal viable product) version of the app. And working like crazy, exactly 5 months after we’d incorporated the company (we were Mums on a mission with no time to spare!), we launched the app in the App Store on 9th July 2015, quickly followed by Google Play three weeks later. The very first version of the app was extremely basic, and could only be used in five postcodes in North London. But that didn’t matter, we were live and ready to bring food sharing to the world!

 

And what’s your growth been like since those early days?

We’re absolutely thrilled that we’ve now got 750,000 users plus 25,000 brand Ambassadors (volunteers) all over the world. And together they’ve shared over a million portions of food – which is the environmental equivalent of taking almost 3 million car miles off the road!

How do you cope with different food safety regulations on person-to-person food exchange in all these different countries?

Food safety and regulation is something we take very seriously. All the food redistribution undertaken by our “Food Waste Heroes” – who collect unsold food from local food businesses and share it via the app – is governed by an incredibly robust Food Safety Management System. And the neighbour-to-neighbour sharing is covered in our standard T&Cs.

You’ve already mentioned a “first investor.” What was it like, raising funding to be able to dedicate yourselves to OLIO and make it grow?

Our very first investor was Simpleweb, who are a development agency in Bristol, and they absolutely loved the problem we are trying to solve and so wanted to partner on it. That enabled us to get the first version of the app built. Since then we’ve raised three rounds of equity financing, and each one has been very different – our latest round was a $6m Series A round led by Octopus Ventures this summer. Fundraising is always challenging, but incredibly rewarding once completed. It’s been quite a sobering experience being a female-founded startup team – because only 2% of VC funding last year went to female founded startups.

How does OLIO make money?

OLIO generates revenues by charging businesses for the service we provide via our Food Waste Heroes Programme to enable them to have zero edible food waste stores. Businesses are increasingly recognising that it’s no longer acceptable to be throwing away perfectly good food – their customers don’t like it, and their employees don’t like it either.

Is there ever a clash between volunteers helping for free and the OLIO founders want to make money?

Our volunteers understand that OLIO needs to have a sustainable business model, and therefore generate revenues, to be able to continue to exist and have the incredible impact we’re having. So they’ve been some of our biggest supporters as we’ve started to monetise.

Your growth rate has been really impressive. What marketing have you used?

Our Ambassadors have definitely been at the heart of our growth. We’ve also had some amazing bursts of new users whenever we’re featured on television, or in the App Store. Press has been useful for reinforcing the brand and credibility although it doesn’t drive immediate downloads. In terms of paid advertising, Facebook and Google have been most effective.

What are your plans for the future?

We have an unashamedly bold ambition for the future – in 10 years’ time we want a billion people to be using OLIO. When we raised our Series A funding this summer, it enabled us to double the size of our team and so now we’re really accelerating our growth.

Thank you Tessa, your story is so inspiring.

If you would like sign up to OLIO and start sharing recyclable surplus food then please go to their website now to download the app.

Crowdsourced Marketing Makes a Big Impact and Saves a Packet

Crowdsourced Marketing Makes a Big Impact and Saves a Packet
One of the biggest recent trends in marketing is crowdsourcing. In the last decade, 85% of the top global brands have used it in some form.

In pre-digital days it was pretty much restricted to publicity stunts or involved celebrities, or both, and relied on the media gatekeepers – print and broadcast media owners – to be a vital part of the process. Media owners were the b2b crowd that a brand owner sourced, and the media provided the b2c link. Mass digital connectivity has widened the net, and crowdsourced marketing can skip the media owner involvement and still achieve phenomenal results.

Today’s digital connectivity enables all of us to publish online material, if we want to, and social media spreads the word to encourage direct access to content created personally or in-house by brands. It also means people can respond to brand owner call-outs with an array of written content, photos and videos. This means crowdsourced marketing can involve consumers voting on or even submitting ideas for marketing campaigns and advertisements. A well-known example is the Doritos “Crash the Super Bowl” contest in which consumers submitted homemade Doritos commercials for the chance of their work being shown during the American Football end-of-season Super Bowl. It ran for 10 years.

Sticking for the moment with crowdsourced marketing meaning generating editorial media coverage through newsworthy publicity stunts and appearances by celebrities, Richard Branson is very good at it. He continually makes himself a news item to promote one Virgin brand or another. The example below is a press conference for the launch of Virgin Voyages, cruise ship holidays. The media pick up on a lot of what he does, and he also uses his own social media to communicate directly with audiences.

Crowdsourced Marketing Makes a Big Impact and Saves a Packet

Examples that relied on traditional media to leverage the message include the now defunct UK holiday company Club 18-30 (which catered to that age group) that used to get high levels of press media coverage by putting up risqué posters near to newspaper offices where they were bound to be seen by journalists: “Wake up at the crack of Dawn… or Lisa, or Julie” was one example. I created a case study about this back in the Noughties for the out-of-home contractor Clear Channel.

This and other similar poster executions won advertising industry awards for the creative ad agency, Saatchi & Saatchi, even if public outcry against indecency – ironically fuelled by the newspaper coverage they were designed to achieve – resulted in them having to be taken down early. But they had done their job.

Founder of the Ultimo lingerie brand Michelle Mone is another business person/celebrity who created her own media moments in the spotlight.

Crowdsourced Marketing Can Make an Impact and Save a PacketOne incident, when she was still a cash-strapped startup just beginning to get the first shops to stock her products, involved hiring a dozen actors. They pretended to be plastic surgeons and demonstrated outside the Selfridge’s department store to try and prevent them stocking her cleavage-enhancing underwear.

They claimed they would be out of work if too many women decided to wear an Ultimo bra rather than have surgical implants, and blocked the road, the world famous Oxford Street. Their morning picketing was shown on lunchtime television news and Selfridge’s sold what was meant to be six months’ of stock in five hours. It’s all in her book, My Fight To The Top.

Up-to-date, and on a far more serious theme is an example from South Africa. Francois Du Preez, Digital Creative Director of Grey Advertising in South Africa presented a case study at the Crowdsourcing Week 2016 Global Conference. Dog fighting is an unsavoury and illegal activity in South Africa that causes many animals to suffer, not just the ones that do the fighting, and it’s a multi-million Rand industry when related gambling is taken in to account.

Crowdsourced Marketing Makes a Big Impact and Saves a PacketCriminals steal domestic small dogs to feed to pitbulls being trained to fight, to give them the taste. But over time a majority of the public had tired with and disengaged from the regular media coverage of tattered, battered and mutilated dogs. The ad agency created a mobile billboard that appeared to publicise a dog fight, Nitro vs Thor, with a website URL and a phone number. Social media exploded within one hour of it driving around affluent suburbs of Johannesburg. It was reported on radio news and in the next editions of newspapers. Angry people found out the website had been registered by Du Preez and some came looking for him.

The website was taken down after just  three hours in which time it had received more attention than they had ever anticipated. Against this background of anger they ‘came clean’ that the advertised dog fight was a stunt and then got even more media exposure for supposedly trivialising the distasteful and illegal activity. The issue was suddenly important once again to many people.

The amount of media space and broadcast airtime costed as media advertising exposure was valued at Rand 1.7 million. The mobile ad had cost Rand 7,000, allowing a claimed ROI factor of 240 times the initial outlay. But not only had massive media coverage been achieved for such a tiny sum, the mobilisation of the crowd had made it so much more effective than if a real budget had been used with a regular “this is bad, let’s all help put a stop to it” style of message.

In the digital-era of personal connectivity, newcomer craft beer brewer Brewdog claimed to be worth £1.8bn in January this year (based on some corporate investment deals), and has vowed to never spend a penny on paid-for advertising. Though they happily hired and branded a helicopter to make a video of parachuting “fat cats” (stuffed toys, I hasten to add) in to the City of London to generate news coverage of the fact that they were crowdfunding. They went on to raise their first £5m through equity crowdfunding without the services of any expensive “fat cat” investment advisers.

Crowdsourced Marketing Makes a Big Impact and Saves a PacketA current example is the Royal Mail which has installed four musical post boxes in the run-up to Christmas. When cards and letters are posted they trigger a sensor that plays a loop of snippets from Christmas tunes and reindeer sleigh bells.

There is just one in each of Scotland, Wales, Northern Ireland and England. The one in England is in Greenwich, the historic area on the south side of London’s River Thames and a UNESCO World Heritage Site, very popular with tourists.

It has been mentioned in social media by many people and organsations including numerous bloggers and local businesses in the area, reported in local and national newspapers, on BBC tv news and by the advertising industry platform Campaign.

The Royal Mail are using the added media coverage to raise awareness of this year’s last posting dates. There, I’ve written about it and you’ve read about it, it works.

Crowdsourced marketing offers huge benefits for businesses. Crowdsourcing saves on marketing costs because either consumers are happy to submit their ideas for free in exchange for seeing them used in the marketplace, or because bloggers, journalists and editors fall over themselves to create engaging content featuring stunts and/or celebrities to entertain their audiences. Plus these days there is direct consumer-2-consumer connectivity. It’s a great way to get affordable coverage of a crowdfunding project.

If you’d like to discuss you own ideas for a crowdfundng project and to see how I can maybe help you please email me at [email protected] Don’t forget, a dream isn’t a plan and hope isn’t a strategy.

Crowdfunding does more than raise money

Crowdfunding does more than raise money

I was recently asked about crowdfunding by the founder of a startup business that makes a range of non-alcoholic wine.  There was nothing confidential in my reply, so I thought I’d share it with you.

You’re absolutely right that crowdfunding can be a more time consuming way to raise money compared to perhaps a VC investment or an angel investor. Yet there are other benefits that go way beyond the money it raises.

For example, VCs were queueing up to invest in Chapel Down (the celebrated English sparkling wine maker) when in 2014 they launched their equity crowdfunding campaign. Beyond raising £3.9m in three weeks, their CEO Frazer Thompson told me that crowdfunding had generated 1,500 brand advocates who would spread positive word-of-mouth, buy Chapel Down products at every gift-giving opportunity, and create sampling opportunities by stocking their wines (now beers as well since they built a brewery with some of the money they raised, and gin too) both at home and in their company drinks cabinets. Priceless!

Crowdfunding creates a virtuous circle whereby customers can become shareholders and shareholders become customers. I’m caught up in it myself as an investor in a craft brewery and a gin maker. If “my brands” are available,  why drink others? Shareholders catapult themselves right up the brand loyalty ladder.

Hop Stuff Brewery started five years ago when it raised £58,000 through offering 34% of equity. It’s now valued at over £25m, with products stocked in Wetherspoons (which encourages lower than regular cost product trial), Tesco and Majestic Wine; it has a growing chain of beer and pizza outlets; and international sales and franchise brewing agreements.  Hundreds of their 1,000+ investors from three rounds of crowdfunding on Crowdcube attended an “Investor Fiesta” event at their new brewery back in August.

A network of investors can be used for research purposes and to ask for ad hoc assistance such as help recruit staff,  recommend suppliers, volunteer their own services, and so on. At the Hop Stuff event I heard a fellow investor volunteer to use his contacts to help sort out supplies of CO2, which if you remember was in short supply in the summer.

Crowdfunding does more than raise moneyEven if it’s not a main aim of the crowdfunding, it could find you an angel investor. This happened to some people I know who started a business making tissues from bamboo. To begin with, all they wanted was an initial £10,000 of orders through rewards crowdfunding to provide validation they weren’t wasting their time. A backer was impressed with what he saw and stepped forward to invest, which allowed the founders to greatly speed up product development and company growth. So do eveything as professionally as possible.

They were a top-seller on Amazon very quickly. Within three years the company founders raised £500,000 in October 2018 for 10% equity on the Seedrs crowdfunding platform  – they had a business valued at £5m!

Their latest news is The Cheeky Panda tissues are now stocked in Tesco and Morrisons; in the summer they signed a £1m corporate investment deal that valued them at £20m; and right now they are running a second round of equity crowdfunding for existing investors in which they are offering 5% for £1m.

Good crowdfunding is also good marketing. I call it an ultimate direct marketing campaign. There’s a start date, an end date, lots to do, and if you fail to hit target you don’t raise any money. Naturally there are risks, though by breaking a crowdfunding campaign down in to component parts each potential risk can be addressed and minimised. I’ve created a Seven Stage Assessment to check if a business is ready to start crowdfunding, and identify areas that need to be addressed before going public.

My approach is more from a marketing angle, since that’s what I’ve always done. I am not a finance expert and not qualified to give financial advice. Though I can provide an experienced layman’s assessment on how appealing any offer may be to the public. I do have a post-grad diploma from the Institute of Direct and Digital Marketing and a Professional Diploma in Management from the Open University Business School.

One vital tip is that crowdfunding should not begin until you have done enough personal pre-selling for 30% of the financial target to fly in to your crowdfunding campaign within the very first few days. This applies whether you’re trying to generate product orders or offering equity. This gives immense confidence to other backers who don’t know and haven’t met you, and creates valuable momentum. So if you have a target of £200,000 your pre-selling should reach a guaranteed support level of £60,000 in the bag before you start crowdfunding in the public eye (ideally more to allow for dropouts).

Early success is newsworthy and hard-working PR will generate media coverage to add to your early momentum.  On the other hand, crowdfunding without pre-selling is like shovelling quicksand – hard work and you get nowhere.

How much it costs and how long it will take depend on:

  • how well your business rates against my Seven Stage Assessment
  • how much work has to be done to become investment-ready
  • of that, what can be done internally and how much has to be outsourced
  • including how enthusiastic and good you are at using social media – and “it’s ok, my kids use Facebook, they can help” isn’t good enough
  • success rate of using PR to secure media coverage
  • how long it takes to drum up support to reach the first 30% of your target.

If you have no social media networks to drive people to your crowdfunding project it may first require months of work to build some. Or months to accumulate impressive media coverage you’ll be able to refer to, or both, ideally.

Outsourcing support and input can even begin with the pitch document. A 30-chart deck may be very thorough but it’s too much for a potential equity investor to wade through with enthusiasm. Most look for the first reason they can give themselves as to why not to invest so they can move on to the next opportunity. Simply having to spend too long to get a feel of an opportunity is a good enough reason to discard it right away.

Don’t forget the taxman. Many retail investors prefer businesses to be registered with HMRC under EIS and SEIS agreements. These Enterprise Investment Schemes allow tax-paying investors to claim valuable rebates of up to 50% of the cost of their investment, and shelter capital gains from CGT. Under SEIS a company founder can invest up to £100,000 in their own business and claim a refund. Make sure you understand and take advantage of these benefits for yourself and your backers.

To close, what you see online when people and organisations run crowfdfunding campaigns is like the tip of an iceberg visible above the waterline.  Invisible under the water is a vast amount of planning and preparation, and a fair amount of stress. It’s not impossible to run a crowdfunding campaign alone if you’re tough and resiliant enough, though most people need some help and support, be it technical or emotional or anything else. This comes either from a team of willing supporters who between them provide all the necessary skills required to achieve your success, or you need a budget. Most times it’s a bit of both. If you want to talk about your ideas that could transform your life please get in touch, [email protected]

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.

Mayor of London has £1m for Community Projects Using Crowdfunding: Sep 3 Deadline

Mayor of London Has £1m For Community Projects Using Crowdfunding

The Mayor of London recently announced an allocation of £1 million available to a range of grassroots community projects. Operating in conjunction with UK crowdfunding platform Spacehive and the Greater London Authority, community project leaders can apply for a maximum contribution of up to £50,000 for new not-for-profit projects that serve the wider community. It’s a competitive process, and I can help applicants to succeed. The deadline for applications is September 3.

The Mayor and GLA’s main purposes of the initiative appear to be to:

  • Crowdsource ideas at a grassroots community level that add to or improve local facilities, maybe through new uses of disused buildings and locations, to inspire City Hall regeneration policy-making.
  • Show Londoners that their City Hall and elected representatives are listening and responsive in a demonstration of growing transparency and accountability.

The re-purposing of abandoned locations and unused buildings, particularly high street retail units, is a matter of growing national concern. Online shopping, road congestion, scarcity or cost of parking spaces and a recent hike in business rates have all reduced footfall and raised costs at traditional retail outlets.

The #CrowdfundLDN project will crowdsource many ideas that could influence local authority policies on how to respond to the hollowing out of previously vibrant areas within communities, and also empower groups of volunteer citizens to work together to deliver their solutions at a lower project cost than full funding from any local authority’s budget.

In 2017 the initiative also attracted a number of corporate donors who wanted association with the initiative. Backers included renewal energy company Bulb, creative co-working space Second Home, Ladbrokes and B&Q alongside Esmee Fairbairn Foundation, Growing a Greener Britain and Veolia.

Here’s the 2018 timeline.

  1.  Mayor of London Has £1m For Community Projects Using CrowdfundingWorkshops are currently taking place throughout London to raise awareness and participation levels, and to brief interested parties on the scheme details.
  2.  During July and August project leaders will start to build their crowdfunding pitch on the Spacehive platform, identifying necessary skill sets and assembling their team(s) to finalise the pitch, raise the money  and then deliver the end project. Completed crowdfunding pitches, including plans on how the project will be delivered and then maintained as a going concern, must be submitted to Spacehive by September 3.
  3. Later in September the projects that meet a required standard of community benefit, validation of local community support, short-term achievability and longer-term viability will go live on Spacehive and start to generate funding.
  4. 30 to 40-or-so projects selected to receive a contribution from the Mayor of London’s £1m budget will be announced in October at an event staged in London’s County Hall, headquarters of the GLA and Mayor of London (as in main image in 2017).
  5. Each project will then continue its crowdfunding efforts during November and December to reach their target. The crowdfunding will be on an “All or Nothing basis,” meaning if a project fails to reach the outstanding balance of its overall target the Mayor will keep his money and the project will not go ahead.

Being selected is naturally very positive news to tell potential backers through PR and social media. Projects that fail to receive a Mayor’s contribution can still choose to continue their efforts to raise funds, though of course they will have a tougher job to reach their target.

Benefits for the funding applicants are numerous, and include: 

  1. At a community level, participation in the scheme draws together people with a shared focus on involvement in a project for ulterior motives. Firm friendships and alliances between local businesses have been forged in the previous two years of the scheme.
  2. At a personal level, a number of individuals may develop new skills through the experience and interaction of being part of a team, and gain personal confidence through empowerment. All and any of these factors could boost their employment prospects and future personal earning potential.
  3. All successful projects will improve the number and range of London’s community facilities available to the city’s population.

Previous successful projects include building a sustainable food yard, kitchen and event space at Bankside near the Tate Modern to act as a hub for the promotion of sustainable food activity. The project provides education, outreach and advocacy for innovation in sustainable food practices, and incubator space for startups. Affordable access to a professional kitchen as a community resource enables hopeful commercial food and drink suppliers and would-be chefs and restaurant owners to experiment, gain experience and refine skills.

One project completed the external refurbishment of an iconic and much loved local art deco cinema in Hackney. The project also created a second screen allowing for more local events and the sustainable operation of the enterprise as a non-profit community facility.

Mayor of London Has £1m For Community Projects Using Crowdfundingsouth London disused railway space will enjoy a new lease of life as a 900m pedestrian walkway and natural garden area in what was previously a rail yard used for coal wagons. It is a facility comparable to the inspiring and better known elevated walkway examples in New York and Paris. An initial crowdfunding project in 2015 on Spacehive raised money for a feasibility study, now published as a 180-page document. In addition to a contribution from the Mayor of London, Southwark Council also donated £10,000.

Previously abandoned garden allotments in Tolworth, Kingston Upon Thames, were re-purposed as a suburban farming project to teach food-growing skills and create a productive, sustainable source of locally produced food. The designers of the growing space went on to win an award at the prestigious Royal Horticultural Show at Hampton Court with an edible garden.

Details of all 25 projects backed in this initiative by the Mayor of London in 2017, which between them received a total contribution of £400,000, are here.

Mayor of London Has £1m For Community Projects Using CrowdfundingSpacehive has made a lot of useful information and planning guides available, and also gives details on additional sources of funding in some boroughs. Though if you’d like extra support and insight about using crowdfunding to make your idea for a local community project become a reality then please contact me via [email protected] There’s no charge for the first meeting or conversation on Skype or the phone, and let’s take it from there. You can also follow me on Twitter, @Cliveref.

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.