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Crowdfunding does more than raise money

Posted on November 22, 2018November 23, 2018 by Clive Reffell

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.

Even 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

Posted on August 26, 2018August 28, 2018 by Clive Reffell

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.

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.

An 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.

Who 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.

If 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

Posted on July 20, 2018July 22, 2018 by Clive Reffell

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.

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.

All 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

Posted on April 2, 2018 by Clive Reffell

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.

UK energy newcomer raised £487,000 through reward crowdfunding

Posted on January 4, 2018March 20, 2018 by Clive Reffell

The UK consumer energy market is dominated by six companies who between them supply over 90% of the market. Newcomer and disruptive brand People’s Energy raised almost £488,000 last year through reward crowdfunding on Crowdfunder UK, and started trading in August 2017. They needed startup cash, and offered savings against future bills as rewards. Their eventual aim is to really shake up the market through acquiring a million customers who will all be shareholders, making company decisions and receiving a slice of refunded profits.

Here’s the “gap in the market” they want to exploit. None of the current “Big Six” energy companies are recognisably customer-centric. There is a generally critical public perception that they offer complicated tariff structures making it difficult to find the best prices or to compare different suppliers, and that they deliver similarly uninspiring levels of customer service – no more than 43% of any of the Big Six’s customers would recommend their supplier.

There is also public resentment over their “profits before people” ethos: consumer prices never drop when wholesale energy prices do, and energy prices have risen at three times the rate of general inflation over the past 20 years. Amid unproven accusations of collective price-fixing, in April 2017 the Government put in place a price cap on each suppliers’ top tariffs, possibly remaining in force until 2023.

A relatively uncompetitive market dominated by a few large, unresponsive companies who lack customer trust is a ripe target for disruptive new entrants, which is what People’s Energy aims to be. Karin Sode, People’s Energy’s head of marketing, kindly answered some questions for me.

People’s Energy launched by using donations-for-rewards crowdfunding to raise over £487,000 and generate 2,055 customers. What was the thinking behind this?

We differ from all the other suppliers in that we want to give our customers shares in the company and pay back the profits to them, not to some other faceless shareholders. For that reason, we turned down potential investors who wanted equity in return for their investment.

Equally, equity crowdfunding was not an option because although it would have been easier for us [than reward-based crowdfunding] it would dilute the model and our unique offering of ownership to customers. We knew that it was a tall order but we were determined, worked very hard at it, and are pleased that we succeeded and were able to launch the company on 1 August 2017.

Was it difficult to get an operator’s licence given you will operate very differently from the Big Six?

Ofgem (the UK energy market regulator) has been very welcoming and appreciative of the very different model we offer to help shake up a market that suffers from real trust issues. Getting the initial licence was not the hardest thing, a bigger challenge was one of initial funding to get started, and we resolved that through our crowdfunding campaign.

After receiving the licence, we then went through a probationary period called ‘Controlled Market Entry’. We could take on only a limited number of customers while we proved to Ofgem we had the operational capability to serve them well. We went through that period fast, and successfully, and I’m very pleased to say we are now fully licensed to operate and welcome as many customers as we can.

A stated aim is to put 1 million people in charge of their own energy as shareholders in People’s Energy. Will you need to raise more money to achieve this?

We will operate on a “cost plus model” based on wholesale prices and our fixed costs, plus a small buffer that allows us to be robust. We’re a new business with no legacy costs to have to cover. There will be a single tariff for all customers, with our prices always in the lowest 30% of other tariffs on offer. Right now we’re in the lowest 10%. We are now broadly self-funding.

However, there will be a need for some further funding to realise other ambitions to invest in innovative renewable and energy storage solutions. In the meantime, a key interim aim is to sign up 20,000 customers within 18 months of our launch, which is a deadline of February 2019.

Where will People’s Energy customers come from?

We hope to appeal to younger customers through our sharing economy model. Market research shows that the more innovative companies operate in a more community/membership way, such as Giffgaff (a mobile/cell network) and Monzo (banking services).

We plan to build out the community approach and encourage people to share what we offer through personal endorsement to their contacts. This will help us grow the numbers at pace. In addition, we are currently in talks to establish partnerships with various bodies that will help drive up customer numbers more quickly.

In terms of offering your customers control, what sort of issues will they have a say in?

A key aim is to rebuild trust between consumers and energy providers. That can’t be done through words and promises but has to grow through the actions we take. Offering customers an element of control is therefore a direct attempt to make people feel heard and valued, really given a voice.

We want customers to have a say in whether or not we use the profits to purchase renewable generation facilities (including wind and solar farms), invest in development of power storage, or if they prefer to have the profits repaid to them.

We also plan to consult customers on whether they want profits shared depending on their energy usage or if every customer should get the same rebate. The latter option would support individuals in lower income households, but may not be considered fair for people with large usage such as small businesses. We believe the customers should have a chance to decide for themselves rather than us deciding on their behalf in a remote boardroom.

People’s Energy will provide electricity only from renewable sources. Will residential prosumers be able to sell back to you energy they produce from renewable sources?

We are not yet able to accommodate this, though it is absolutely something we want to facilitate as soon as we possibly can. For now, after switching over to People’s Energy for their energy supply, people will be able to continue to sell back surplus energy they produce to their current supplier.

If you are considering a crowdfunding project, whether offering equity or providing rewards, please get in touch if you’d like an objective assessment of your ideas from an independent crowdfunding adviser. Please email me at [email protected] or contact me through Twitter, @Cliveref.

Update on 20th March 2018
CrowdFundRES is a European project that contributes to the acceleration of renewable energy growth in Europe by promoting crowdfunding for financing renewable energy projects. It has published a practical guide for crowdfunding platforms, project developers, investors and policy makers on “Crowdfunding Renewable Energy.” You can access it here.

How Digital Tokens and Initial Coin Offerings Work for Video Gamers

Posted on September 24, 2017 by Clive Reffell

Independent game designers and smaller-scale publishers often use reward crowdfunding platforms including Kickstarter and Indiegogo to launch new products. In the 10 years since the iPhone was introduced the computer and video gaming industry has been shifting from stand-alone offline platforms (consoles and PCs) to a $multi-billion online industry with a host of new benefits and possibilities. Mass direct connectivity has disrupted yet another market.

Research released earlier this year shows mobile gaming (on smartphones and tablets) is now the largest market segment, accounting for 42% of the total global market and worth an estimated $46.1bn. Mobile gaming is expected to have a 50% share by 2020.

Global Games Market By Segment
Source: Newzoo Global Games Market Report 2017

Benefits of online gaming for game enthusiasts include opportunities to compete against other players. Tournaments have also drawn back in as spectators plenty of former players who can no longer invest sufficient time to excel personally. For game creators, they can connect directly with gamers rather than rely on expensive intermediaries, which is particularly good news for smaller publishers and independent game developers.

As a business model, game companies rely almost entirely on direct consumer spending, rather than an advertising-based model used by many digital or broadcast media companies. In addition to the initial game purchase, players buy advantages such as superior weaponry or access to exclusive content that gives them an edge over other players. Natural ability ultimately hits a ceiling, and serious players can spend considerable sums of money amassing virtual goods to be competitive at the top level.

An example of this is Chronicles of Elyria, the highest earning game crowdfunded on Kickstarter when 10,752 backers had pledged $1.36m by June 6 2017. It was created by Soulbound Studios based in Bellevue, Washington. In addition to enhanced weaponry and other accessories, or accelerating progress by starting the game at a superior level, the biggest backers were able to name locations and characters in the game which made them co-creators in the process.

This income was achieved via cash-only pledges through the Kickstarter platform, though a significant online benefit for game developers is to move away from a direct cash-purchase system to the creation of game-specific tokens. Purchasing tokens can be incentivized with savings against ‘retail prices’ when they are later used, thus encouraging gamers to invest larger sums in advance, boosting the early income stream for the developers. Game developers may also choose to award tokens as prizes to expand the token user base, and a strictly finite supply of tokens for any game also drives demand through FOMO – fear of missing out.

Tokens can usually be purchased with cash or cryptocurrencies including bitcoin and ether. The game tokens can be stored alongside the cryptocurrencies in crypto-wallets until they are required. The same underpinning blockchain technology ensures the tokens cannot be used fraudulently or duplicated, and keeps transaction costs to a minimum.

Age of Rust, a futuristic game of intergalactic warfare and rogue artificial intelligence developed by Space Pirate Games, uses Rustbit tokens as a means for players to enhance their performance. In addition to setting a fixed limit of 100 million Rustbits they were sold at an escalating price equivalent to 100,000 tokens for the value of a bitcoin in week 1 to 50,000 tokens pegged to the value of a bitcoin by Week 5.

The emergence of this market has attracted entrepreneurial fintech innovators. Rustbits were created for SP Games by Counterparty. Counterparty-generated tokens can be used for a wide range of purposes and act as their own cryptocurrency, while still running on the Bitcoin blockchain. In effect, game developers are thus releasing their own ICOs – Initial Coin Offerings.

Other providers in this market include GameCredits Inc whose ambitious mission is to create and provide game developers with GameCredits that become a globally-recognized universal currency of the entire gaming world, and thus inter-changeable from one game to another. TokenMarket operates on a wider scale with any blockchain-based business or organization that wants to raise funds for projects through a token or ICO crowdsale.

If you are considering crowdfunding in any of its reward, debt or equity formats and would like an objective overview of the possibilities and benefits relevant to your business or idea then please contact me for an initial no-charge conversation. Please drop me a line at [email protected], I am an independent crowdfunding adviser and not tied to any particular platforms.

Does Marketing need marketing to startups and SMEs?

Posted on August 15, 2017 by Clive Reffell

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.

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 to have more by owning less

Posted on July 7, 2017July 11, 2017 by Clive Reffell

Mass digital connectivity and the personal tools that have enabled the sharing economy to flourish have created a climate of transformational change in which many business sectors have been disrupted almost beyond recognition.

Many retail brand names have virtually disappeared from urban high streets as book, record and camera shops are largely bygone relics of the age when shopping experiences were concentrated there. Renting videos and DVDs in person, going to a bank, saving up to buy a car and searching for affordable hotels to stay in are actions that are either obsolete or in decline now that we can go online to use LoveFilm, Netflix, Spotify, banking services, Uber, Airbnb and many other time saving, on-demand and improved value services that a myriad of entrepreneurs want to offer us.

Or if we are among the people with a spare room, attic space or a car parking space to rent out, or even largely unused clothes and furniture, then we can earn some money by offering them for hire to people we are matched up with online. A surplus of personal residential space (a big house!) and a wardrobe of designer label clothing are still regarded by many people as status symbols, helping them feel comfortably higher up Maslow’s hierarchy of needs. Now they are loaned out to strangers.

In crowdfunding – the ‘alternative finance’ area in which I operate as an independent crowdfunding adviser, mentor and personal trainer – those with sufficient disposable income are prepared to support startup businesses launched by people who in some cases they have never even met, either through ordering products that can be at still a prototype stage or for equity in a company they like the look of but which provides no guarantee of successfully providing a return on investment.

So it’s not just a case of technology and connectivity making it easier to behave the same way that we did before. There has been a well-documented and fundamental shift of attitudes towards more emphasis and value on what we can do with money that makes us feel good about ourselves, rather than primarily what we can buy and keep to ourselves to support and project our self-esteem.

Two news items I recently came across in the crowdsourcing/sharing economy heartland of cars and accommodation brought this home to me.

Uber commissioned some research among a sample of 2,000 Londoners. 34% of Londoners used an app to book a car in the last 12 months, rising to over 55% of 16-34 year olds. 22% of current car owners would consider giving up their vehicle if they could even more easily get a car on demand by app. 13% of adult Londoners under 30 don’t have a driving licence and have no intention of getting one. London may well not be typical of the whole UK, though the trends appear deeply entrenched among a population that is bigger than that of countries such as Austria, Denmark or Hungary.

While working for a client in the construction sector I read about planning permission approval for a 19-storey tower block in Stratford, London, the main venue for the 2012 Olympic Games. This would be a residential tower block with a difference. Personal space in the 250 units will be scaled down to a minimum that can still satisfy privacy and security issues, to the point of each unit having a “kitchenette” without some of the supposed essential white goods we rely on. The trade-off for limited personal space is that residents will have access to a comprehensive range of communal facilities that not so long ago were the lifestyle trappings of only the better-off. These include a gym, cinema, roof terrace, sauna and hot tubs, library and a food market. It will open late 2018 or early 2019 and rooms will start from £230 a week including utility bills, council tax, wifi, cleaning and gym access

I have spoken with people from several large property developers recently. Planning and building design trends include wider corridors to make it easier to more regularly bring furniture in and out depending on whether a multi-purpose spare room is going to need a hired bed for friends to stay over, or a borrowed table and chairs to invite guests to dinner. In response to recent public consultations, residential projects at planning stages are also often reducing the amount of car parking space to provide more provision for safe and secure storage of bicycles.

These signs of largely Millennial-influenced lifestyle changes may not be for everyone, though they are certainly more than passing fads. This includes using more money, perhaps through supporting crowdfunding projects, to feel good by helping others achieve a personal ambition rather than pursuing a blinkered path more restricted to the acquisition of personal possessions.

If you are one of the growing number of people who seek funding to transform a personal business ambition in to a satisfying reality, then please get in touch for a free initial discussion (in person in London or via Skype) on whether some form of crowdfunding could do the job for you: [email protected], an independent crowdfunding adviser.

Top 10 US Reward and Equity Crowdfunding Platforms

Posted on May 25, 2017 by Clive Reffell

Mass digital connectivity has significantly disrupted the business investment market. Online crowdfunding enables company owners to trade equity for funds to invest in growth. Who’d have thought 10 years ago that it would be possible for business owners to raise seven-figure sums from people they didn’t know, or even have as a customer? The vital stepping stone was the sometimes massive sums raised on reward crowdfunding platforms. Except early backers are unable to invest in the companies themselves, only acquire their often innovative products.

Reward crowdfunding

Kickstarter is the world’s largest reward crowdfunding platform. It was launched on April 28 2009 in New York as an alternative way to raise funding for performance arts projects and productions. Its model is to encourage low value donations from a large group of people rather than a lot of money from a few individuals.
It quickly expanded to cover many other hobby, craft and product categories, and has raised almost $3.05bn through hosting 124,935 successful projects (the figures are updated daily by Kickstarter).
It has an “all or nothing” policy meaning projects that fail to reach their target don’t receive any funding and the backers who made pledges don’t pay anything. Successful projects pay a 5% commission plus up to 3% transaction charges.

Indiegogo actually launched first in January 2008 in San Francisco, again as an alternative way to raise funds for arts projects. Indiegogo also quickly grew to host projects in many different categories.
A significant difference is that Indiegogo allows projects to receive the money that’s pledged even if they fail to reach target. When this happens their regular 5% commission rises to 9%, plus there are always transaction fees of approximately 3% on every project.

Since 1 January 2014, Indiegogo has hosted slightly more projects than Kickstarter: 231,900 vs 218,896 (as measured by crowdfundingcenter.com on May 17 2017). However, Kickstarter has hosted significantly more that reached their target – 68,984 vs 26,272.

Based on these figures Kickstarter has an average success rate of 31.5% and Indiegogo achieves 11.3%.

These two broad scale platforms dominate the US reward crowdfunding market and to have a point of difference the next largest platforms focus on specialist business sectors.

PledgeMusic is third placed behind these two giants, as measured by website traffic. It launched in August 2009, aiming to do for the music industry what Indiegogo and Kickstarter were doing at the time for other arts genres. It is used by all types of people from hopeful wannabes to established performers with an existing fanbase.
It operates like Kickstarter on an “all or nothing” basis for people raising money to complete a project like record an album, and on a “keep what you raise” basis when people use it as a sales channel for any finished content that can be downloaded. It charges a flat and all-inclusive 15% commission on “sales” and fundraising projects that hit or exceed target. This looks expensive though they claim a success rate of over 90% for the average 100 projects they carry per month.
The platform operates globally by accepting payments through credit cards and Paypal.

Seed&Spark is an industry specific crowdfunding platform for the tv and film industry and is based in Los Angeles. It launched in December 2012 and within an overall aim to build an independent film community it provides filmmakers with a reward-based crowdfunding facility. They claim a 75% success rate.
Projects must reach a minimum 80% of target to keep the money pledged by backers. Then upon completion of a film, any project that also gathered over 500 backers is automatically eligible for distribution through Seed&Spark and their partners including all major cable and digital platforms such as iTunes, Comcast, Verizon, Netflix, and Hulu.
Seed&Spark charges a 5% fee on successful projects, though offers project backers the opportunity to add this to their pledge. Many choose to do this and on average the crowdfunding projects themselves pay just 1.9% of funds raised to the platform.

Barnraiser is a platform for artisan food producers, small farmers and exponents of sustainable, healthier living. It encourages its community of over 30,000 like-minded people to crowdsource advice and contacts from each other, and also provides a rewards crowdfunding facility they claim has a 65% success rate.
It launched in 2014 and 187 projects have been successful. The largest amount raised was $93,190.
Successful projects are charged a 5% fee based on the amount raised plus payment processing fees of 3-5%. If funding isn’t successful there are no fees.

Equity crowdfunding
Title III of the JOBS Act came in to effect in May 2016 and extended online equity crowdfunding opportunities to Americans earning under $200,000 per year, though included limits on the amounts that could be invested. New platforms were launched to provide a full online equity crowdfunding facility to this wider market, whereas the previous ones serving higher net worth individuals (“accredited investors”) required transactions to be made offline.

The Wefunder platform tracks progress of this new retail equity crowdfunding sector based on mandatory Form CU filings on the SEC’s EDGAR database. Since May 16 2016 to May 23 2017, just over $35.8m has been raised through Regulation Crowdfunding offerings.

Wefunder is the early market leader and it launched in 2012. The minimum investment size is $100, and Wefunder has created internal Investor Clubs in order that part-time investors in its network can access the wisdom and leadership of more experienced and professional investors and combine their investments with them on equal terms.
Wefunder members have provided 55% of all online equity crowdfunding investments through Regulation Crowdfunding in the first 12 months of online equity investment trading being open to non-accredited investors.
Investments made through StartEngine, which is based in LA and launched in June 2015, represent nearly 22% of the Regulation Crowdfunding total raised so far, according to SEC figures. StartEngine also raised $17m from 6,600 investors under Regulation A+ for its client Elio Motors.
In 2016 Indiegogo ventured into equity crowdfunding in partnership with Microventures to launch a platform called First Democracy VC. To date it has accounted for 9% of the sector’s total $35.5m.
NextSeed is based in Houston and its investor network has invested $2.8m in equities, 8% so far of the combined Regulation Crowdfunding. Investors can put in as little as $100 and NextSeed’s equity crowdfunding projects have ranged from as low as $25,000, typically for personal leisure/entertainment/service providers such as bars, restaurants and hairdressers.
NextSeed also provides companies with debt facilities which contribute to their claim of having provided their clients with total funding of $3.8m.
Three other platforms in this sector tie for fifth place as they have each raised in the region of $1m for clients from equity investors:

Republic (offers Reg CF only and investments can begin at just $10);
SeedInvest (which mainly focuses on non-Reg CF raises of over $1m);
FlashFunders (where Reg CF investments can start at $50 and they also handle Reg D raises over $1m and Reg A+ raises up to $50m).

Whilst equity crowdfunding is now at least possible to some degree for everyday Americans, and there are some equity crowdfunding platforms that at last provide the single “one stop shop” we are accustomed to in the UK, there are still some built-in restrictions that impede faster growth. These include businesses cannot use Regulation Crowdfunding to raise more than $1m (about £833,000).

If you are based in the UK and considering any form of crowdfunding to raise money for a business startup, to scaleup an existing business, or to use a crowdfunding platform as a sales channel for your products, then please get in touch if you’d like a free and confidential consultation with an independent crowdfunding adviser – which is me! Call 07788 784373 or send an email to [email protected].

How crowdfunding can turn a holiday idea in to business reality

Posted on March 20, 2017December 31, 2020 by Clive Reffell

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 gave the company founders a business valued at over £5m. By June 2020 they had grown it to over £50m!

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.

Their 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 they 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 founders invested a total of £5,000 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 expanded with facial tissues, their products were available on Amazon and through a number of ‘health stores’, and by March 2017 they were 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 became a company with a value exceeding £5million. Quite a stunning achievement given the co-founders had a business idea on holiday just two years previously.

2020 update
In 2019 their product range added award-winning babies’ nappies after they had started their own family, and as I add this comment in 2020 I can say I regularly see their products on the shelves at Tesco. After further corporate backing and two more rounds of equity crowdfunding (the last one completed in May 2020) The Cheeky Panda has a company valuation of over £50 million.

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].