There are different types of crowdfunding, and plenty of platforms to choose from for generating donations to a charity or a worthy cause; asking for help to complete new product development; personal fundraising, such as for medical costs or educational fees; accessing loans at lower-than-high-street interest rates; buying and selling shares in privately-owned businesses; and using a crowdfunding platform as a distribution channel to generate pre-paid product orders. The choice of a crowdfunding platform can significantly impact the success of a campaign, particularly for startups seeking business finance. So it’s important to carefully consider the following 15 criteria for choosing which crowdfunding platform to use.
Type of Crowdfunding: There are different types of crowdfunding, including donation-based, reward-based, equity-based, and lending-based crowdfunding. Choose a platform that aligns with the type of crowdfunding you’re looking to use for your campaign.
Fees and Costs: Crowdfunding platforms usually charge fees for hosting campaigns on their platform. These fees can vary significantly and may include platform fees, payment processing fees, and other charges. Evaluate the fee structure to understand how much of your funds will be used to cover these costs.
Target Audience and Niche: Some platforms cater to specific niches or industries. Choose a platform that attracts backers who are interested in your project’s field or sector.
Geographic Reach: Consider the platform’s global reach and the countries where it operates. Some platforms are more popular in certain regions, so choose one that aligns with your key target audience’s location.
Platform Reputation and Trustworthiness: Research the platform’s reputation, history, and success stories. Look for reviews from other campaigners to gauge the platform’s reliability and trustworthiness. Platforms that are members of the UK Crowdfunding Association are obliged to follow the UKCFA Code of Conduct.
User-Friendly Interface: A user-friendly platform with an intuitive interface can make it easier for both campaigners and backers to navigate and participate.
Campaign Support: Check if the platform provides resources, guides, and customer support to help you create and manage your campaign effectively.
Visibility and Exposure: Some platforms have a larger user base and better marketing reach, which can increase the visibility of your campaign. Consider the platform’s ability to help your campaign reach a wider audience.
Fund Disbursement: Understand the platform’s policies regarding how and when funds will be disbursed to you. Some platforms release funds only after the campaign reaches its funding goal, while others may allow earlier partial disbursements.
Flexible Funding Options: Some platforms offer flexible funding, where campaigns receive the funds even if they don’t meet their target goal. This is known as Keep What You Raise. Others use an All-or-Nothing approach. Choose the one that aligns with your campaign strategy and your available budget to run your crowdfunding. You don’t want to incur costs and then realise you aren’t going to have any money.
Social Sharing and Integration: Look for platforms that have social sharing features and integrations with social media platforms. This can help your campaign gain traction through online sharing.
Analytics and Reporting: Consider platforms that provide analytics and reporting tools to help you track the progress of your campaign and understand your backers’ behaviour.
Legal and Compliance: Different crowdfunding models have legal and regulatory implications. Ensure the platform complies with relevant laws and regulations for your type of campaign.
Intellectual Property Protection: If your campaign involves a product or innovation, research how the platform handles intellectual property protection to safeguard your idea.
Community and Engagement: Platforms with active communities and engaged backers can provide valuable feedback and support for your campaign.
Ultimately, choosing a crowdfunding platform should align with your campaign’s goals, target audience, and the type of crowdfunding you’re using. Carefully review your options and choose the platform that best suits your needs. If you want some help, I am an independent crowdfunding advisor with no ties to any particular platform. Send me an email to [email protected]. Or follow me on Twitter where I regularly post news about crowdfunding campaigns.
The main image shows some of the crowdfunding platforms available to use in the UK – apologies to the ones I have left out.
I was fortunate to meet recently the founder and CEO of the startup Fix Radio station. Louis Timpany did some building site work as a student and experienced the building trade’s love affair with the radio. He listened to their gripes and grumbles about what was on offer, and then set about creating a different type of startup commercial radio station that better suited their listening habits – sometimes all day, most days – and also championed their causes. He then had to set about monetising it to build a secure future for his niche radio station which is outside the established pattern of how a commercial radio station operates these days. Louis turned to equity crowdfunding.
After starting with a regional presence based around London and Manchester, in 2022 the station was granted a national digital licence. Since then its listening audience size has grown by nearly 250%, and national advertisers including B&Q have recognised the Fix Radio station’s ability to deliver a key advertising audience with low wasteage.
The station also gets behind what matters to the building trade. Such as the grim statistic that men who work in construction have the highest suicide rate of any industry sector in the UK. The seemingly never-ending introduction of one-way roads and width restrictions make life more difficult for builders – and their clients. Post-Brexit immigration rules are exacerbating the construction sector’s skills shortages, and escalating fuel and building material prices mean it’s harder to manage costs and make adequate profit.
For those of you that know me, I spent a couple of summers as a student preparing for each September’s new rugby season by working for a local builder, and later I spent six very rewarding years working at the generic marketing body for the UK commercial radio industry. There was a certain inevitability that I would sign up to Fix Radio when I came across their crowdfunding campaign in 2022, and I was one of nearly 350 investors who backed the station with over £950,000.
The funds allowed Louis Timpany to scaleup his startup radio station by expanding his team; run promotional events across the country to build awareness among potential listeners and commercial supporters; and sign up to industry acceptable audience measurement research. Naturally I wish Louis and his team great success!
If you have a startup business and are thinking about how to raise a budget to accelerate growth, please get in touch to discuss whether crowdfunding is going to be appropriate for you.I will provide you with independent crowdfunding advice and set out a seven-stage appraisal to get you ready.
Many startups using crowdfunding offer techie apps or fintech products and services, but it was a Midlands-based doughnut company that recently enjoyed phenomenal equity crowdfunding success.
The Project D doughnut company, set up in 2018 by three former schoolmates, launched an equity crowdfunding campaign in May 2023 to raise £400,000 and accelerate the company’s growth. It already had an annual turnover of £2.6m prior to the crowdfunding, and had set an aim to reach £12 million in three years. They were staggered to receive, in just a preliminary private investment round, pledges of £2 million. This was before it was even open to the general public. They used the Crowdcube platform, which is a major one for equity crowdfunding offers in the UK.
The three founders were left wondering how to respond: how much added equity would they open up to crowdfunding investors? Some people may think they should just take the full £2m on offer from investors in the private round, and then go ahead and generate even more from the public round. However, given the high demand for their equity, they could scale back now and possibly come back soon with another round at a higher share price.
Equity crowdfunding success like this is great to see, though it doesn’t happen very often to this degree. And it does also present some problems. I began to think about what the reasons or the circumstances were that caused this surge of popularity. Five factors came to mind.
1. Project D has a low-entry-cost product that significant numbers of customers have been able to try, and evidently decided they like the doughnuts and the way the company operates its D2C order-taking and delivery. They have a substantial community of over one million people to attract as investors. They had obviously done some good data capture work to be able to communicate the crowdfunding offer to them.
2. A lead investor had guaranteed £150,000 – 37.5% of the initial £400,000 target. That gives smaller investors confidence to go ahead.
3. The business had used social media very cleverly to raise brand awareness, with viral videos on its Tiktok account receiving 19 million views in a single two-month period.
4. Project D can claim corporate accounts with British Airways, Brewdog, Amazon and Rolls-Royce. It might have been no more than a delivery to a local office, but big brand names add cachet and boost investor confidence.
To investors, it must have looked like a tasty winner all the way! There are lessons here for all sorts of companies in many different sectors about customer data capture, effective marketing, the value of corporate accounts and the reputational benefits of entering and winning awards.
If you are considering running a business-related crowdfunding project, and want to discuss it with an independent crowdfunding adviser, then please get in touch by an email to [email protected]. To keep up with crowdfunding news, events and projects you can follow me on Twitter.
Crowdfunding risks and returns follow the same rules as any other investment. Higher returns mean exposing money to more risk.This is certainly true in crowdfunding, whether you want to raise money for your business or on a personal basis. I wrote an article for my client BOLD Awards on this topic, which looks at the risks and returns involved in reward, debt, and equity crowdfunding. I included some examples, plus a little personal experience.
Debt crowdfunding platforms, also known as peer-to-peer lenders, generally experience an average default rate of 1 to 10%. Equity crowdfunding mainly, though not exclusively, involves backing startup businesses. On average, 50% of them fail in their first three years, and only 1 in 10 succeeds beyond ten years. Investors seek higher returns from buying equity than from providing capital for loans.
Reward-based crowdfunding, which does not involve buying equity in or lending to a startup, carries its own risks. It swiftly developed from rewarding backers with a gesture of appreciation for a donation to a project or an appeal. In many instances it has become a quasi-sales channel where the donation is effectively the purchase price of a product, and the product happens to be the reward that is provided. Even though this may sound like a straightforward transactional arrangement, it can carry risks if the product on offer is still in the development stage. It is definitely not the same in timescale or consumer protection as ordering an item from Amazon.
The rest of the article goes through the balance of crowdfunding risk and return for each of reward-based crowdfunding; debt crowdfunding (aka peer-to-peer lending): equity crowdfunding; and crowdfunding to buy fractionalised ownership of tangible assets, such as art, luxury cars and watches, rare whisky, and so on. It is over at the Bold Awards site, please use this link to continue reading: https://bold-awards.com/crowdfunding-risks-and-returns/
It’s been a pleasure to spend time in 2022 working with the CrowdInvest equity crowdfunding platform. Headquartered in London, it’s a cross-border startup investment platform with a mission to connect investors from developed markets with startups from growth markets. A key objective is to accelerate the growth of businesses concerned with environmental or social impact outcomes. They will also operate an equity crowdfunding secondary market for shares bought through the platform.
Their initial spotlight will be on the UK-India corridor and then expand to include emerging economies in southeast Asia, Africa and the Middle East. CrowdInvest will pay particular attention to nurturing founders from less privileged backgrounds to generate inclusive, sustainable economic growth. Their transparent application process and due diligence procedures have no gender bias.
I recently wrote an article for them about the growth of secondary markets for shares bought through equity crowdfunding. Buying equity in a privately-owned business through crowdfunding is always risky, and in the early days it was also an illiquid investment. No matter how circumstances changed for any individual investor, their money was going to remain off-limits until the business they invested in exited by completing either a trade sale or an IPO.
The growth of equity crowdfunding secondary markets in privately-owned businesses has subsequently developed in the past few years for two main reasons:
Improved liquidity makes investing in startups through equity crowdfunding platforms more appealing.
To make secondary buying and selling a larger income stream for the crowdfunding platforms.
The growth of the secondary market has also attracted other non-crowdfunding fintech platforms. To read the full article please head over to https://bit.ly/GrowthOfSecondaryMarkets.
You can join the CrowdInvest waitlist today at https://www.crowdinvest.com/ to stay up to date with developments on how to be involved, either investing in startups from emerging economies or in the platform itself.
The world’s population is expected to have grow by over 2.3 billion people from 2009 to 2050. To feed the world population by then, food production will have to increase by around 70% from the 2005/07 levels (source: The World Bank). Meeting this world demand for food is going to need innovation in agriculture: selecting what to grow, how to grow it, learning how yields per acre of land can be raised, and reducing food waste significantly. Innovations and breakthroughs do not have a past history for banks, other traditional lenders or investors to weigh up the potential risks and returns. Crowdfunding for agriculture, agritech and new foodstuffs will help develop the innovation needed to feed over 9 billion people by 2050.
It’s more than just the number of people
Annual economic growth forecasts for developing countries are around 2.9%, which will reduce economic poverty substantially. Rising income levels usually drive an increased demand for meat, eggs and dairy. This in turn boosts pressure to grow more corn and soybeans to feed more cattle, pigs and chickens. If too many farmers follow this trend it would still mean shortages of subsistence crops for the poorest people.
Other complications include:
an increasing level of foodstuff used for biomass fuels
methane produced by livestock is a significant contributor to greenhouse gasses
extreme weather conditions associated with climate change will ruin crops more often
On the plus side:
hydroponic farming enables more efficient use of resources
robotics coupled with better data collection will allow greater use of artificial intelligence
better crop selection, reduced infestations and better-timed harvesting will improve arable efficiency and yield levels
There are different types of crowdfunding, all based on the broad principle of getting a little bit of support from a crowd of people, rather than try to get all the money from a single source.
Donations crowdfunding is what it says; people donate and expect nothing tangible in return. The satisfaction of having helped a cause or an idea they empathise with is enough.
Reward crowdfunding was originally a way to incentivise donors with a perk – some form of a related benefit: perhaps a product sample; a t-shirt as a thank you; or a mention on a website page. This developed in to commercial reward-based crowdfunding, whereby crowdfunding platforms can be used as virtual sales channels: a “donation” is “rewarded” with a specified product item that can be made on demand. The sums involved can range from very modest projects to some generating over £1m of orders.
It is common for startup creators of an innovative product to use reward-based crowdfunding to check marketplace traction. On achieving good results they move on to equity crowdfunding to set up a solid business. A great example is The Cheeky Panda, which has disrupted the paper tissue market with a plant-based alternative. It began in 2016 with a reward-based crowdfunding project that aimed to generate £10,000 of orders for tissues made from sustainable bamboo, which has three crops a year. After just five years’ trading and four rounds of equity crowdfunding, plus VC and institutional investment, the business is currently valued at £80m. Its founders are reportedly planning an IPO in 2022 at a flotation value of £300m.
The UK remains a global leader in equity crowdfunding – which is the raising of investment funds through trading shares in a business via a crowdfunding platform. By comparison, U.S. equity crowdfunding remains complicated by a two-tier system of accredited and non-accredited investors; limits on how much businesses are allowed to raise and individuals can invest; and strict (expensive) legal verification of documents. After a brief trial period in China it does not exist at all. It is banned by the financial authorities in India who claim the majority of people need to be protected from both scammers and from inherent financial investment risks they do not understand.
In peer-to-peer lending, crowds of retail investors make money available to P2P loan companies, for whoch they receive a higher fixed rate return than the retail investment levels generally available to individuals. With fixed repayment dates, it is a more liquid form of investment than taking equity in startup businesses. P2P lenders make the funds available to vetted borrowers. Without having to pay middlemen, shareholders, or finance a legacy infrastructure of bank branches, it means the borrowers can pay lower interest rates. Approval and access to the money is also much faster.
Folk2Folk is a UK P2P lender specifically for the crowdfunding for agriculture / farming sector.
Crowdfunding new foodstuffs
Seaweed is being hailed as a “superfood.” It is increasingly used as a basis for snack products, and for meat-free mince used in sausages and burgers. It can also be used in fabric to make clothing, in cosmetics, and feeding seaweed to cattle can reduce their methane output by up to 80%. While it is growing, on undersea ropes, it is more effective at removing CO2 from the environment than forests on the land.
Seaweed farming is in its infancy in the UK. Traditional lenders and investors lack a database of past performance against which they can assess the risks and potential returns. The modest sums often sought for early stage developments are not large enough to interest VCs.
Yorkshire-based Seagrown reached its reward crowdfunding target of £25,000 in August 2021, which will allow it to seed an extra four kilometres of rope. The seeded ropes will be suspended just offshore in the North Sea in October, and Seagrown expect to harvest their crop in summer 2022. The perks for the biggest backers include a boat trip out to the rope lines. This will give Seagrown’s founders a unique opportunity to spend time with them and find out how much they may be prepared to invest if they decide to go ahead with equity crowdfunding. Crowdfunding is good marketing and network building, it can open doors.
In 2019, the US plant-based food company AKUA launched the world’s first kelp burger made from sustainable seaweed. In 2018 they had used reward-based crowdfunding to generate $80,000 of orders for a packaged kelp jerky product via Kickstarter and Indiegogo. Then from early November 2020 to late April 2021, they raised $1,070,000 (the maximum permitted at the time) via the US equity crowdfunding platform Republic. This reinforces that progression from reward to equity crowdfunding is now quite a standard path. AKUA’s success, and that of all similar businesses, creates a growing market for seaweed farmers.
A meat-free burger made from kelp, a type of seaweed. Source: AKUA
An example of crowdfunding for agriculture related to clothing is a young UK entrepreneur, Adam Costello. He grew up near the Anglesey coast. Time spent clearing plastic waste from the sea and the beaches led to a business plan to make clothing using seaweed fibre, and decorate it with messages about ocean sustainability. He offered the clothing to early backers through Kickstarter. His gross order value was modest, just over £14,000, though it was enough to start his Inland Sea business. This shows how crowdfunding provides an individual with a way to follow their passion and start making a difference, as well as an income.
Crowdfunding hydroponic farming
Also known as vertical farming, crops are grown indoors, in stacked layers, in nutrient-rich water instead of soil. Hydroponic farmers manage and maintain optimal nutrient levels in the liquid solution. It means food can be grown anywhere there is a supply of fresh water and energy for lighting – no soil required! Food can even be grown underground or in surplus office blocks, nearer to population centres in hyper-local supply chains. This reduces the food miles required to put it on to consumers’ plates. It uses far less water per volume of food produced, and no pesticides, making it more sustainable and climate-friendly.
A World Wildlife Fund 2020 report estimates indoor farming will have an annual growth rate of over 24% between 2018 and 2024, hitting $3 billion in revenues worldwide in 2024.
At a startup level, Harvest Londonraised over £400,000 in 2019 to grow food to order in the heart of London for restaurants. They are still trading, desite the hospitality shutdown during the Covid pandemic.
Also in London, UK, Square Mile Farms raised over £500,000 through equity crowdfunding in June 2020. They install vertical farms in workplaces, to engage employees in their maintenance and help businesses create a culture of healthy, low-impact living. Early customers included the major property owners and developers Grosvenor Estates and British Land, plus Vodafone. The property owners became active partners through providing access to their commercial tenants.
A hydroponic herb tower
More recently, another specialty B2B operator, Local Indoor Farming (LIF) in The Netherlands, raised €108,000 in July 2021 through a crowdfunding campaign on the CrowdAboutNow platform. LIF will now manufacture and provide herb towers to hotels and the catering industry so they can grow their own fresh ingredients in a totally controllable manner in limited space.
On a much larger scale, Aerofarms is a US agritech business that began in New Jersey in 2004 and today it has indoor vertical farms across the country. In 2010 it raised an undisclosed amount through equity crowdfunding. They use any available buildings that are large enough, including former factories and nightclubs, even a paintball venue. In 2019 Aerofarms invested $42m in a 150,000 square feet purpose-built facility in Virginia. A recent investor in 2020 was the Abu Dhabi Investment Office (ADIO) that wants to grow food in its desert. In 2021 Aerofarms completed an IPO. They are listed on the NASDAQ exchange and currently valued at $1.2 billion. They claim they grow 400 times more food per unit of land than conventional farming can achieve.
Inside an Aerofarms hydroponic vertical farming facility
Crowdfunding for agriculture technology – agritech
Drone Ag provides farmers with drones they can fly using software loaded to their mobile phone. Without having to be there, they can spray crops, check that crops are growing well, spot infestations, and create images far clearer and more detailed than using satellite-generated ones. This enables better control of pests and soil nutrition, reduces costs and chemical use, and ultimately increases yields and profit. The two business founding brothers were farmers themselves, and through absolutely understanding the challenges that exist today they have created technology that will handle the future. They raised almost £300,000 in 2019 in exchange for approximately 16.6% equity, and then a further £300,000 in 2020 for 10.7% equity.
In the last 12 months, UK-based Small Robot Company has transitioned from prototypes to a commercial service. It uses an autonomous robot and AI software to create a weed map for customers. Fungicides and biopesticides can then be applied with precision to reduce the amounts wasted in places where they are not needed. In August 2021 Small Robot Company raised £4m through equity crowdfunding to manufacture a fleet of robots for its commercial weed mapping service. Two other devices under trial include the world’s first 5G-ready agri-robot for arable farms, and SlugBot is the world’s first robotic monitoring and bio-molluscicide treatment system for slugs.
Crover is a new business in Scotland. Its crowdfunding for agriculture technology was to develop a robot that burrows down in to cereal crops stored in silos or while it’s in transit at sea. The robot checks non-visible conditions inside the crops: humidity, temperature, presence of any pests, and so on. In August 2021 it raised £337,000 through equity crowdfunding. Crover’s next steps include pilot tests in the UK and Italy as part of the agROBOfood Innovation Experiments throughout March 2022.
Crowdfunding for agriculture will accelerate the innovation in new foodstuffs and agritech required to feed over 9 billion people by 2050.
I originally wrote this article for Crowdsourcing Week as part of its Content Marketing programme.
It’s said by many people – not just me – that as well as raising money, effective crowdfunding is great marketing. It gets you written about and maybe interviewed. It gets you noticed by would-be suppliers, collaborators, distributors, influencers, affiliates and stockists, as well as backers. I made one of own investments after being impressed when I saw, by total accident, a startup CEO interviewed on television about her crowdfunding project.
Crowdfunding is one of twenty categories in the third annual round of the international BOLD Awards. Their aim is to recognise and shine a spotlight on crowd-related breakthroughs and innovative people, businesses and projects that are leading the way and setting an example in digital industries. Other categories include AI, Robotics, AR/VR, Crypto, Fintech, Cybersecurity, Agritech, Sustainability…….. here’s the full twenty categories.
Here’s how it works. Entries are submitted online, naturally, and can be viewed by potential voters and continually updated by the entrants. There will be a public round of voting early in 2022, which is an opportunity for entrants to mobilize their communities and “get the vote out.” An international panel of judges will then take a look at the entries, and winners in each category will be decided through a blend of public votes and judges’ appraisals.
Winners will be able to collect their awards at a prestigious black-tie gala dinner on March 25th, hosted by Europe’s largest accelerator hub, H-FARM, on their campus just outside Venice. It will be a unique event, with unrepeatable opportunities to network and connect with leading edge innovators and disruptors among the other winners, the judges, and invited VIPs. Given thatcrowdfunding is great marketing, here will be your chance to make an impression in person.
Plenty of candidates would be able to enter under several categories. As an example, the Small Robot Company, with its agritech robots controlled by AI and working to improve sustainability, has recently concluded a round of equity crowdfunding in the UK.
Previous nominees in the Crowdfunding category include Startup Italia and Borrow A Boat from the UK.
Entries are open, with the price held at €77 until September 15. If you have worked hard and enjoyed crowdfunding success, get some recognition at the BOLD Awards gala dinner award ceremony in Venice in March 2022. Register to enter now, and maybe I’ll see you next March in Venice.
Crowdfunding is firmly established as a means for individuals and privately owned businesses to generate funds, and in some case it can literally make dreams come true. Crowdfunding is a very flexible and adaptable method of fundraising which this selection of activity I spotted in July 2021 demonstrates.
I have looked at how some of the GB competitors at the Olympic Games used crowdfunding to help them get to Tokyo; how it has been used by two startup brands in the plant-based food sector; and by a trio of gin makers.
Sports fundingthrough donations crowdfunding
Many of us are enthralled by top level sporting contests, and certainly the pinnacle in many sports is to take part in the Olympic Games. However, while commentators encourage feelings of national pride at GB success, funding varies hugely across sports; while some receive millions of pounds, others only receive thousands to get them through the Olympic cycle. Also, several sports had their level of funding cut in the run up to the games in Tokyo, and many members of the GB team turned to crowdfunding to try and fill some of the gap and let them keep training as much as possible to compete at the highest level.
One such competitor was BMX rider Beth Shriever. Supposedly based on the likelihood of winning medals, funding for male riders stayed in place but female riders were left to their own devices. This meant Beth Shriever relied on crowdfunding donations made through the GoFundMe platform and a part time teaching assistant job to maintain her place in the team. Simply being in Tokyo was a major achievement, which the former junior world champion from Leytonstone topped by winning a gold medal.
Members of the GB Rugby Sevens squad found themselves in a similar position. After the home nation rugby football unions of England, Wales and Scotland cut their funding, a combined crowdfunding project was launched for both the men’s and women’s squad members on the Pledge Sports platform. Both the men’s and women’s teams reached semi-finals, and lost a playoff match to miss out on a bronze medal. Who knows how much their on-pitch performance might have been improved without money worries in the build-up not just to the Olympics but also other competitions they played in to keep fit and sharp?
Their reward-based crowdfunding remains open for a few days for anyone to still show some appreciation of their efforts. Rewards are still available and include coaching sessions, signed playing shirts and joining players for a day’s golf. Crowdfunding is flexible and adaptable, though in this case could probabaly have been helped by more support on social media by the players.
Equity crowdfunding to help us eat less meat
There is a growing trend to eat meat less often. Cattle farming is increasingly regarded as an inefficient use of resources, forests are cut down to create grazing land, and cows give off high levels of methane that contribute to the climate crisis.
Meatless Farm creates vegan, plant-based meat alternatives in a product range of mince, burgers and sausages. It was founded in 2016 by Danish entrepreneur Morten Toft Bech. As of October 2020, Meatless Farm employs 100 people in Leeds, Amsterdam, New York, and Singapore. Their products have a much lower environmental impact and are stocked in many branches of the leading UK supermarkets, and are available in 20 overseas markets. They can also be ordered frozen for direct delivery to consumers, and consumed in Leon Restaurants, Pret a Manger and Itsu outlets.
Meatless Farm’s current round of crowdfunding on Crowdcube closes on August 19. Against an initial target of £2 million they have raised over £3.4m from over 4,200 backers. The money is being raised as Convertible Loans. This means a share price has not yet been established. It will be set as part of the next corporate funding round, anticipated later this year, and will be based on the company valuation at that time. When it is set, the value of each backer’s loan will be converted to equity at a discounted rate of 15%, plus 5% per annum interest. This round is not eligible for investor benefits under EIS (Enterprise Investment Scheme), though does demonstrate how flexible and adaptable crowdfunding can be if you haven’t even got a company valuation.
Institutional backers dating back from before the crowdfunding include Bridford Investment Group, Channel 4 Ventures, Stray Dog Capital, and Beyond Impact. Having worked in Media Advertising and Corporate Barter Trading, the Channel 4 backing is of particular interest to me. The tv station effectively traded over £1m of advertising airtime for equity in the business. Advertising will initially run regionally across Channel 4’s main channel and on its streaming service All 4, targeting a core 16-34 year old audience. Channel 4 is in the process of moving its head office to Leeds, where Meatless Farm is based.
The Crowdcube round forms part of a total of £18,000,000 of convertible loan notes. The company raised £5,870,000 from existing investors in May 2021 and allowed for up to £5,000,000 from Crowdcube investors. Discussions are underway with addititonal institutional investors for a further investment of £7,130,000 through the convertible loan notes, though to date no agreements have been signed and no funds have been committed. Meatless Farm has the discretion to increase the total amount of convertible loan notes from £18,000,000 to £24,000,000.
Source: Ready Burger
Another business in the meat-free food sector that recently used crowdfunding wasReady Burger. They are a fast food restaurant chain serving vegan, plant-based, non-meat products. To date they have a solitary branch in London’s Crouch End, and yet by June 23 raised almost £2 million from over 800 investors for 22.47% equity. A second site on Finchley Road will open in September 2021, and more locations are in the pipeline.
Max Miller, co-founder and CEO, was well aware of the valuable benefits of crowdfunding beyond simply raising money. “It was important to us as we wanted to create a community of people who would support the brand and hopefully become loyal customers, eat at Ready Burger restaurants and recommend us and our mission to their friends,” he said in an interview with Catering Today.
Investors had been lined up through effective pre-selling and the first £1.5m came flying in within hours of the crowdfunding starting.
When crowdfunding is just the tonic that gin needs
I was contacted recently by the founders of a premium gin brand who wanted to explore opportunities and benefits that crowdfunding provides. I was able to find several examples of other gin makers using either reward-based or equity crowdfunding. Though one that particularly stood out is a reminder that one of the earliest forms of crowdfunding is the simple raffle.
I am a shareholder myself in a gin maker through equity crowdfunding: the East London Liquor Company has a distillery and its head office in London’s Mile End. They have just completed a second round of fundraising through Crowdcube, raising over £900,000 for 3.35% of equity from 757 backers. They already had a company valuation of £26 million.
Looking at the other end of the scale for gin startups, I found that in May 2020 five women raised £22,000 through reward-based donations crowdfunding to start the Isle of Cumbrae Distillers in Scotland. Being of a self-described “mature age,” and with no commercial spirits industry experience, it’s highly unlikely they would have met the terms required for a business loan or startup grant. Their crowdfunding project not only raised the seed cash they needed but also helped them form a group of loyal supporters who have become regular customers. One backer even offered to buy them the distilling equipment they needed to get started! They hope they will be an inspiration to other women to go in to business.
However, one fundraising effort that particularly stood out is a reminder that one of the earliest forms of crowdfunding is the humble raffle.
Bronagh Conlon became the launch director of Listoke Distillery in Ireland in 2016. She bought out the original business founders late in 2020, a process that involved valuing the company at €1.7 million. There has been considerable interest in her gin, and other spiritis, from China and Russia and Bronagh decided it was time to upscale the business. To raise an investment budget she decided to sell raffle tickets through the UK-based online service Raffall. com, for £20 (€23.30) each. The draw was made on July 9, and the first prize was a 5% shareholding in the business, potentially worth €85,000. Second and third prizes were €10,000 and €5,000, plus cases of gin.
The potential gross income from selling all 50,000 tickets was €1,165,000. At the time I bought my raffle ticket they had sold almost two-thirds of them. Even if there had been no further ticket sales, that level of sales would have generated around €777,000, of which €15,000 went in prize money and there was a 10% commission fee to Raffall.com. Allowing for other costs to promote the raffle, plus legal and other professional fees, they would have been left with at least €600,000 to invest in the business – and all for just 5% equity! This really does show how crowdfunding is flexible and adaptable.
Bronagh Conlon (right), MD of Listoke Distillery, with her daughter Sarah, director of sales. Photograph: Alan Betson
Are you considering your own crowdfunding project, whether on an equity basis or using a reward-based model to lauch a new product? I am an independent crowdfunding advisor with no allegiances to any particular platforms. I can provide you with an object view of your plan, help improve it, and perhaps operate as a Campaign Manager to co-ordinate its execution. Crowdfunding is flexible and adaptable. Are your plans maximising its opportunities and benefits? Email me at [email protected].
Enterprise Nation members – or any startup or small business owner – hardly need to be reminded that starting a business is risky. One of the benefits of equity crowdfunding is it’s a risk that many small investors are prepared to share and contribute towards, and sometimes for other reasons than seeking a financial return on their investment. I have experience of hundreds of pitches from startup founders who wanted backers to either order their new product or buy a stake in their business. It gives me valuable insight to share with anyone who wants to explore using crowdfunding, and this guide to equity crowdfunding for startup entrepreneurs answers several common questions.
Benefits of equity crowdfunding for entrepreneurs
Startup businesses are turning more and more to a range of alternative finance options for early stage investment. Equity crowdfunding platforms are website marketplaces that bring together businesses that want investors, and people looking to invest modest amounts in ways that provide better returns than the negligible high street interest rates. As well as raising money there are several other benefits for entrepreneurs.
It can be good marketing, it gets a business noticed.
Successful backing provides “proof of concept,” helping a business to then get further investment from other sources.
Feedback from “going public” with ideas and aims helps to refine plans and targets.
It’s a virtuous circle in which customers can become investors and investors can become customers – sometimes very valuable ones.
It encourages investors to become brand advocates, climbing “the loyalty ladder” to give the businesses positive word-of-mouth support
It is a public event, establishing a confirmed value that early stage investors clearly agree with.
Investors may choose to back a business where they identify more with its social, ecological or environmental aims than its financial prospects: for many such people the prime reward is the buzz of helping an enterprise they admire to get off the ground.
One of the benefits of equity crowdfunding equity is that it is not a loan, the money is not repayable. Though there is a degree of responsibility to shareholders, and legal obligations.
Why don’t more new businesses use equity crowdfunding?
Crowdfunding isn’t easy. When you look at crowdfunding projects hosted on the various platforms they are like icebergs, which show 10% above the waterline. Below the water is a massive amount of unseen work. I have identified seven key elements of crowdfunding projects, and they all have to be executed well to have a real chance of success. Here are three fundamental ones:
Build a crowd of potential backers, which may have to start months before a crowdfunding project actually goes live on a crowdfunding platform. This requires marketing that includes any amount of activities, techniques, social media and other communication channels.
At least 30% of the financial target should appear in a project within the very first few days of going public, and it requires personal pre-selling by the project leader. It could be an angel investor or a VC. Money arriving quickly creates momentum, and gives confidence to potential backers who may otherwise sit on the fence. Platforms are unlikely to let a crowdfunding project go to a public phase if it has not achieved this level of pre-backing at a private pre-selling stage.
It vital to communicate a clear vision of what the money will be used for, how it will advance the company’s development, how that progress will be measured, and any intentions to run subsequent rounds of fundraising.
There is also a quality bar set by crowdfunding platforms. They only earn from successful projects, so they don’t want to waste time on weak ones. A business owner might get knocked back several times to improve any part of their project.
The time these matters can take means that turning to crowdfunding only as a last resort, perhaps after exhausting every other option, can make it impossible. Think months ahead so you do not have to rush and take shortcuts, because a business that fails to reach its financial target will receive nothing.
How long does equity crowdfunding take?
After preparation to complete the seven key elements to a good standard, the equity crowdfunding platforms generally agree on around allowing three months, starting with a “Hidden phase” as shown in this chart created by the Nordic platform Invesdor. The “Public phase” usually runs for four to six weeks. It’s hard for fundraisers to maintain the required intensity level for longer.
Think of crowds of investors as hunting in packs to uncover signs of weakness that will cause them to make their investments elsewhere. Any number of potential backers can ask detailed questions through the crowdfunding platform. One of their benefits of equity crowdfunding is that the answers will be made visible for all potential backers to see and maybe comment on further. Questions will include items such as these:
what the money raised is going to be spent on and how far it will advance the business’s development
evidence of a true market opportunity
financial statements and projections
timetabled KPIs to monitor progress
intellectual property, or some other hard-to-copy factor of exclusivity
existing or potential competitors
the management team’s abilities and experience
strengths and weaknesses of supply and distribution chains
the impact of any known forthcoming legislation
current and future customer interest/sales prospects
eventual exit strategy
All the information – not just most of it – has to be prepared in advance and made ready for swift replies. Larger investors may request personal calls or meetings – project leaders have to make sure their schedule allows time for this. Questions can come in at any time of any day. It’s full-on 24/7, don’t go on holiday!
Potential investors also look for very advantageous tax benefits offered by HMRC. UK income tax payers who invest in businesses registered under EIS (Enterprise Investment Scheme) and SEIS (Seed Enterprise Investment Schemes) are able to claim a refund of up to 50% of their initial investment through tax relief. If a business later fails, investors can claim a further refund. When a business succeeds, investors can shelter returns from Capital Gains Tax. There are also very early stage SEIS benefits for company directors. They really are worth checking out. Further information is readily available from a number of equity crowdfunding platforms including Seedrs, Crowdcube and Crowd For Angels.
How much does equity crowdfunding cost?
In the Preparation and Hidden phases of equity crowdfunding (see earlier image), there are costs for preparing documents, maybe intellectual property fees, a video and image library, and a budget needed for crowd-building and marketing activity in the build up to and then during the public crowdfunding.
If a startup business considers offering its suppliers payment with equity, they need to keep in mind that shares acquired this way are void of EIS and SEIS tax benefits, so will be of less value.
On completion, crowdfunding platforms all charge commission on successful projects, plus sometimes a completion fee, and there will be transaction fees for handling the investors’ payments. Build these costs in to the fundraising target. Allow for 10% of the total raised to begin with, and check with each platform how much you can bring this down by, and what else they can provide.
How much to ask investors for
Do not expect or attempt to raise all the money you need to fully grow the business in one round of funding. Plan it in stages. As a business grows it commands a higher company valuation, meaning startups are able to raise money in subsequent rounds based on higher share prices.
Road builder MacRebur recently ran its third round of equity crowdfunding. In Round 1 its share price was £7. In Round 2 it was £17 and this time each share was valued at £21, marking the company’s growth.
The Cheeky Panda, a brand of bamboo-based tissues I talked about in the reward-based crowdfunding article, valued shares in its first round of equity crowdfunding at £4.26. It offered 10% of the business for £50,000 in 2017, and when they hit target it represented a public statement that “the market” believed the business was worth £500,000. Then they raised further investments from an angel investor, and institutional backers came in later on. In their second round of equity crowdfunding each share was £18.25, and it was £36 in round three in 2020. Their fourth round in June 2021 saw its shares priced at £50. This is likely to be the final round of equity crowdfunding before an IPO when they have grown revenue to over £50m a year, which could be in 2022 or ’23.
What support does a crowdfunding advisor provide?
An experienced crowdfunding advisor knows the standards required by the crowdfunding platforms, and can save a business owner time and money by avoiding a series of knockbacks to improve a project. They can also negotiate with the platforms to gain added marketing support and other “extras.”
When a crowdfunding project team looks for professional support, there are many marketing, PR and video production companies that have added ‘’crowdfunding’ to their list of capabilities and services. My own experience of some of them has shown patchy competence, with little unerstanding of how to unlocjk the benefits of equity crowdfunding. Do the ones you might choose really understand the dynamics and nuances of crowdfunding projects? A specialist crowdfunding advisor will be able to tell, and can also fulfil a Campaign Coordinator role to steer the entire process.
A crowdfunding project has a start date, an end date, and takes a lot of work. If the financial target is not achieved it’s all for nothing. Though success can make dreams come true and transform lives forever. Follow me on Twitter for frequent examples of crowdfunding projects, and please get in touch when you want to discuss your own crowdfunding project.
In five years as a strategic crowdfunding adviser, I have seen and heard hundreds of pitches from start-ups that wanted backers to either order their new product or take a stake in their business. It’s given me valuable insights to share with anyone considering using equity or reward based crowdfunding for business purposes.This is an article first published by Enterprise Nation in their ‘Learn Something’ series: https://www.enterprisenation.com/learn-something/how-to-use-crowdfunding/
The simplest form of crowdfunding asks us to make online donations through platforms such as GoFundMe or JustGiving to a worthy cause, or to someone who needs help to get through a personal difficulty. Despite the number of small businesses pleading for help recently to tackle Covid-related problems, this form of crowdfunding is not particularly viable for a start-up business.
In this article I focus on reward-based crowdfunding. Among many other benefits, reward-based crowdfunding can provide proof of concept and generate pre-paid orders for goods that may not yet even exist. A follow-up article will cover equity crowdfunding, in which private companies raise funding through offering investors an opportunity to become part-owners in the business.
Reward-based crowdfunding
This is the sort of crowdfunding that runs on Kickstarter and Indiegogo (US platforms that operate internationally), and the UK’s Crowdfunder platform, for example. Kickstarter alone has hosted over half a million projects. Just 38% of them were successful, raising over $5.1bn. Over half (54%) of the successful projects raised between $1,000 and $10,000. The overall average amount raised is $2,580.
It may not sound enough to launch a business, and although results can’t be taken for granted, a professional approach can significantly outperform these average figures. It’s not luck that divides the winners from the losers, it is hard work and careful planning. For anyone prepared to do that, it can be truly life changing.
De-risking the first production run
Project owners create content that compellingly displays and explains the benefits of their new product(s). This information is hosted on reward-based crowdfunding platforms, which also process pre-payment from people who place orders for the item(s). They understand they are not ordering something from Amazon or eBay that will be delivered quickly.
Under a commonly used ‘all-or-nothing’ model, the value of pre-orders needs to reach a minimum financial target, by a set date, before there is an obligation to deliver anything. Given the costs of an initial production run and the volume of goods that would be produced, project owners can set a price per unit and calculate a breakeven point.
If the target is reached, the crowdfunding platform advances the pre-payments and production goes ahead. If the target is not reached the money is returned, and the project owner can return to the drawing board. This real-life research programme saves anyone from being left with production cost debts and a stock of unwanted items.
Projects sometimes fail to hit their target because the marketing effort was inadequate. Perhaps the project owner just didn’t tell a big enough crowd of the right sort of people. The marketing has to be as professional as financial plans and projections.
In a scenario where finished products do already exist, it is also possible to use rewards-based crowdfunding without setting a minimum target. This is the ‘keep-it-all’ model, and all orders must be shipped, regardless of the total number. This model applies to most of the projects on the Indiegogo platform, and that is the major difference between Kickstarter and Indiegogo.
Added benefits beyond raising money
Crowdfunding can test demand and build a customer pipeline
I met a textile designer/market stallholder at Greenwich Market who makes and sells her own clothing range. Niki Pearson was crowdfunding to raise the money to buy fabrics and anything else needed for her next collection of hand-illustrated, ethically made scarves and accessories.
The rewards for people who backed her project were priority delivery and product discounts. The crowdfunding was both covering some production costs and lining up some confirmed orders.
If Niki hadn’t gained enough support, she would have been able to create some different designs and try again.
Corporate crowdfunding
Even international corporations use reward-based crowdfunding. Coca-Cola used it to distribute a limited amount of mineral water from Switzerland direct to consumers. This meant it had buyers’ contact details and could ask them for product feedback. It used crowdfunding as a product research exercise.
Crowdfunding to verify ‘proof of concept’
Have you seen a recent TV commercial for People’s Energy? It is a relatively new renewable energy supplier, with a stated aim to return 75% of profits to its customers. This could disrupt the energy supply market, though a business model like this hasn’t been attempted before. Who would invest long-term in a business dedicated to giving away 75% of its profits?
In 2017, People’s Energy raised almost £500,000 through a reward-based crowdfunding project. Over 2,000 backers donated the money to help the business meet early set-up costs. It was repaid in 2018, and those early supporters will enjoy discounted energy bills for as long as they remain a customer.
The crowdfunding success provided ’social evidence’ that People’s Energy was based on credible principles, and helped to impress institutional investors. The number of customers before the TV advertising campaign had grown to over 40,000.
Reward-based crowdfunding can generate impact investment
In a recent UK project on Kickstarter, with a £13,000 minimum target, a surfer/marine activist/clothing entrepreneur was offering t-shirts made with seaweed fibre to both highlight his original clothing range and to promote action against ocean pollution. It taught me that an acre of underwater seaweed can absorb 20 times more CO2 than an acre of forest. Good crowdfunding is good marketing.
Crowdfunding to validate a product innovation
In 2016, a reward-based crowdfunding project on Crowdfunder tested demand for toilet tissue made from bamboo rather than paper. Bamboo grows very fast, with three crops a year. Massive volumes in China are simply left to rot, making it a very sustainable product. It is also naturally stronger, softer and more hygienic than paper tissue.
After exceeding an initial target of £10,000 of orders, and based on positive user feedback, the founders of this startup had the confidence to order more supplies and it quickly became a top seller on Amazon.
The Cheeky Panda’s products are now available in major supermarkets; it has beaten global, market-leading brands to win international awards; and in June 2020 it broke its £10m monthly sales barrier. The Cheeky Panda has also run three rounds of equity crowdfunding, which is the topic of my next article.
My role as a strategic crowdfunding advisor
If you’ve been using the hyperlinks in the article you’ll have seen what a number of crowdfunding projects looked like online. Many crowdfunding users fail to realise they are seeing just the tip of an iceberg, and that so much preparation work is invisible below the water line.
For regular examples of other crowdfunding projects you can follow me on Twitter, and for insights in to successful crowdfunding techniques there are further articles on my website. When you’re ready, please get in touch to discuss your own project: [email protected].
