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 (main image).
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.
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.
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.
What do investors look for?
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.
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.
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.
I had the privilege of putting questions to a number of international experts in an event organised by Crowdsourcing Week about what goes in to a successful equity crowdfounding round. This article sums up their key insights. If you want to discuss any plans of your own, I’m an independent crowdfunding advisor, which means I have no ties to any particular crowdfunding platform beyond my own personal investments. Send an email to [email protected]
Raising capital through equity crowdfunding
Andrew Zhang of Republic, a U.S. equity crowdfunding platform, ran through the essential structure of a money-for-equity campaign.
They have certainly hosted enough projects to have built up a wealth of insight and experience. Republic has enabled over 150 companies to raise a total of $45 million. Last year the average raise was $500,000. Most of the investors were non-accredited, and the raises were capped at a top limit of $1,070,000 by SEC regulations.
Successful equity crowdfunding can run alongside other funding mechanisms that between them can bring in a maximum of $5m.
There is a strict vetting process to ensure that only the best opportunities are put to Republic’s database of investors: under 1% of all applicants end up launching a campaign.
However, keeping to the theme that equity crowdfunding has democratized the process of funding a startup business, 40% of project leaders have been women, and 20% have been Black or Latinx.
Funding generally comes from four sources: friends and family; people who know the business – customers, suppliers, other stakeholders; Republic’s network of investors; new supporters brought in by marketing activities.
The usual timeline is for a three to four month campaign from going live online to issuing shares to new shareholders. Though prior to this there are issues including arriving at a company valuation, preparing marketing materials, and pre-selling to reach c. 30% of the financial target. Pre-selling ensures the public stage of a successful equity crowdfunding campaign starts with a bang and not a whimper, and gives it dynamic momentum that attracts investors looking for a home for their money.
Key lessons include the realization that at whatever stage of a company’s growth, in addition to raising money, successful crowdfunding involves, builds and strengthens communities. In an increasingly competitive environment this requires expert communication skills.
To be a successful equity crowdfunding project it should be clear what it is asking for; what the organisation raising the money hopes to achieve; and who will benefit. Any funder can go on to become a customer, an advocate, or a supplier. So keep communicating after the crowdfunding closes, share news about your progress through achieving milestones or report on KPIs.
As well as improved professionalisation of all aspects of the process, regulations are adapting to crowdfunding being a global practice. Funds need to flow freely to encourage cross-border financing, though authorities have to be aware of laundering. European harmonisation through the ECN will ease cross-border payments from outside the EU – which of course from 1 January 2021 includes the UK.
Retail investor access to VC deals
Equity crowdfunding is often described as having democratised access to investment funds for startup owners who do not mix in the same circles as high net worth individuals and VC managers. In the same way, equity crowdfunding has opened up opportunities for retail investors to invest in private companies, sometimes alongside institutional backers.
Jonathan Medved is CEO of Israel-based OurCrowd. As the country’s biggest VC investor, he said their links with crowdfunding are becoming more stretched and tenuous than before, though they still allow individuals to piggy-back on their VC investments. For a management fee and a 20% carry-over on profits, retail investors can enjoy the same pre-IPO terms as a VC. Half of OurCrowd’s investment deals are in Israeli businesses.
OurCrowd’s prospects are looking good. Their investor network includes 50,000 U.S. accredited investors. Jonathan is delighted the U.S. SEC (Securities Exchange Commission) is relaxing its stringent rules on who is allowed to invest, and how much they can invest, through crowdfunding projects. Professional qualifications can now replace former demarcations based on income or savings definitions. And smaller businesses will be able to raise more than the previous cap of $1,070,000.
Also, a recent normalisation of political and trade relationships between Israel and the United Arab Emirates has the potential to unleash a torrent of investment capital, perhaps as much as half a billion USD in the first 12 months.
Crowdfunding for Policy Makers
Author and management consultant Tim Wright, of TwinTangibles, closed the event with a session based on insights gained from co-authoring a recently published book “CROWDASSET, Crowdfunding for Policy Makers.” The book looked at crowdfunding from a variety of perspectives, given that policy makers can represent the interests of diverse stakeholders.
His visual device representing the core benefits of a crowdfunding campaign relates to core policy maker interests. In gaining a better understanding of what is of key concern to policy makers, crowdfunding project leaders can better ensure their campaign is fit to succeed.
Naturally, the key element of the whole exercise is that businesses want to grow. For that they need Finance, which in equity crowdfunding is achieved by selling part-ownership of the company. This aspect is overseen by financial regulators and authorities that ensure compliance with financial regulations. National tax regimes differ on how they treat the funding received, cross-border investing is scrutinised for possible money laundering, and the U.S. has an added complication of different rules that apply to accredited and non-accredited investors.
Some countries still bar equity crowdfunding in the interests of protecting unsophisticated investors from possible financial harm, including India.
Crowdfunding also provides Insight to company founders through receiving feedback from people on the nature and structure of the business, validation of the value put on the business, and feedback on the proposed products or services to be delivered. Business trading standards authorities, as an example, would be keen to know that any products offered by firms using crowdfunding meet statutory minimum requirements.
Good Communication is vital for successful equity crowdfunding. This covers the marketing activities, raising awareness and stimulating sales. Most countries have extensive regulations on what can and can’t be said about crowdfunding opportunities, which can differ from one to another. So a crowdfunding campaign can’t always be picked up from one country and then run again in another.
Networks relates to a business’s customers, suppliers, supporters (who may not always be customers), and social media followers. Trading and Advertising authorities would once again be involved here.
And finally, there are also the vested interests of the crowdfunding platforms themselves, who are often members of their own professional trade representation and lobbying group. Such groups include the UK Crowdfunding Association, European Crowdfunding Network, National Crowdfunding & Fintech Association (NCFA) in Canada, and Bundesverband Crowdfunding eV in Germany.
The breadth of interests and responsibilities of related policy makers is thus extremely wide.
Don’t forget, if you want to disucss your own thoughts or plans for an equity crowdfunding project feel free to email me in confidence, I’m an independent crowdfunding advisor: [email protected]
In five years, Narek Vardanyan, CEO and co-founder of The Crowdfunding Formula, built the world’s largest agency (in Armenia) that specialises in supporting entrepreneurs who want to launch new and innovative products, and generate high level pre-orders through crowdfunding. The TCF agency is far removed from asking friends and family members to support a modest Crowdfunder, Kickstarter or Indiegogo project. In the past three years they have worked on 13 projects that raised over $1 million of product orders, and that’s the level of ambition they want to work with.
There are plenty of lessons to learn from understanding their almost indiustrialised process of preparing for and executing a reward crowdfunding project, many of which also apply to equity crowdfunding.
How to secure The Crowdfunding Formula’s engagement
TCF uses a simple scoring system, and a project has to score at least 4 out of a possible 6 to be considered.
To achieve this rating it’s clear a product must be aimed at a B2C mass market for TCF to become involved.
Beyond the scoring system, a project leader should have a core team of around five people to share the workload, an ambition to achieve at least $1 million worth of pre-orders, and a prototype that’s at least 85% complete.
How and what to prepare in a pre-launch period
Thorough preparation in the run up before a reward crowdfunding project goes live is absolutely vital to provide a foundation for success. This work is never seen in the project content finally visible to the public on a crowdfunding platform, and remains a challenge to many who aspire to be an innovative entrepreneur.
TCF’s team of experienced operatives can identify a host of issues to double-check and pressure test, including sourcing materials and components, manufacturing to regulatory standards in different countries, and supply chain and fulfilment reliability. Some projects have started as long as a year later than originally planned in order for the prototype to be acceptable.
Start to build a crowd of backers
Work here focuses on three elements:
Growing a base of early-adopter subscribers who are interested enough to sign up through a landing page, or join a Facebook group, and not only back a project but maybe also add their voice to the marketing efforts. Opportunities to earn perks with limited availability can make them feel special and identify strongly with a project’s ultimate success.
Creating a network of influencers, bloggers, journalists and editors of off- and online media who will review and rate a product.
Building a stockpile of images and video content.
The question of “How many subscribers are needed?” relates to the item unit price. Once a crowdfunding project goes live, potential backers of high ticket items will need more reassurance than for lower price items, and thus need to see an early and convincing level of support.
How to reach and motivate subscribers
TCF can set up a chatbot, a VIP Facebook group, and other social media pages such as Instagram and a ‘regular’ Facebook page. They will create subscriber subsets who will respond better to different types of communication content, and devise a raft of bonuses to keep them all involved during the pre-launch period. You need them to place their orders as soon as the crowdfunding project goes live to give it momentum. Asking them to refer friends can also be very effective.
How to collect and communicate with influencers
Manual searches to first establish the identities of relevant influencers, and to then find contact details, are too slow and time consuming for a project that aims to raise $1 million. The TCF team have the skills to use automated services. Whether you’re going to use a marketing agency to support your project, or handle it all yourself, these are some of the list-building tools that are available.
Nymeria enables users to quickly find a person’s email address on supported sites like LinkedIn and GitHub.
RocketReach finds email, phone and social media details for over 250 million professionals.
Prophet is an advanced search tool available from the Chrome Web Store. Has 30,000 users.
Email Hunter extracts and auto saves email addresses from website pages as you visit them.
Lead IQ, primarily designed as a tool for sales teams, similarly extracts contact data from web pages and LinkedIn.
Voila Norbert has built up a massive database of B2B email addresses which they will examine to meet customer requests.
Anymailfinder uses job title search to find your ideal contacts if you don’t even know their name.
Leadgibbon can add email addresses to a list of contact names and domains.
PhantomBuster is great for finding contact data in social media profiles.
Having created a group of influencers, reminding them about your project and keeping them informed of progress is also handled better through automation. Mailshake is an email outreach software and sales engagement platform that helps you send emails from Gmail and G Suite, and Streak extension is another CRM system for Gmail users. Others are available.
PR tips on what to say
Have product samples available to send to influencers for them to review, and put the most important information in an email in a P.S. Use articles about your product in retargeting ads, and embed tracking pixels in your emails to enable effective follow up.
Let them know you are available if they want to make a video that features you or your product, offer them special perks if they place an order, and ask if they can make any contact lists available to you.
Remember, all this is done in a pre-launch period before your crowdfunding project goes live. Much of it equally applies to equity crowdfunding, where the challenge is to build crowds of influencers and potential retail investors.
How to set a reward crowdfunding target
Narek’s advice is you should set it as low as possible in order to be able to report a fantastic level of overfunding and look to be a sensational success. Nobody else has to know the real aim is at least $1m, or whatever your own target is.
The minimum goal for an “All or Nothing” crowdfunding project should be the breakeven point where pre-orders cover the first minimum production run. It is important to also allow for the following:
Any level of profit you feel your team’s efforts deserve.
Fees charged by the crowdfunding platform, which will include an element covering transaction costs (credit/debit card, bank transfer fees, PayPal). In total, about 10%.
Packaging and delivery costs of the products, plus any applicable tariffs related to countries you are going to ship to.
Costs you are going to incur to run the crowdfunding project, such as video production, photography, maybe launch events, product samples, Facebook and other social media advertising, legal services and charges, IP protection, and the fees charged by a support agency.
Under the terms of “All or Nothing,” if your project fails to meet the minimum goal the backers are not charged the money they pledged, there are no platform fees to pay, and you don’t have to manufacture the product. The manufacturer, however, may still want some level of payment if they had set aside some production time in their schedules. Consider this in your negotiations with them to begin with. Overall though, if you fail to reach the minimum target you can go home to think again without having incurred a great debt.
The Crowdfunding Formula charges 25% of the money raised. This may seem a lot, though consider what they help each client with, the other benefits of crowdfunding beyond generating sales income.
This article was first published, by me, for Crowdsourcing Work, where my role is Content & Marketing Partner. I am in regular contact with team at The Crowdfunding Formula – what do you want to ask? Email me at [email protected]
Covid-19 vaccinations have started and perhaps provide a route back to some normality within a few months. Though many businesses haven’t had the luxury of being able to simply batten down the hatches and wait that long, and many people who used to work for them face a turbulent 2021 full of change.
The ranks of the self-employed and small businesses are going to grow. Crowdfunding provides solo entrepreneurs and startup businesses with many benefits, including product testing and raising awareness alongside raising finance without melting down credit cards, re-mortgaging the family home or taking on other forms of a loan guaranteed against personal assets.
Business experience is valuable
Those who had reached the autumn of their career may feel particularly uncomfortable about going it alone in a fast changing world where digital natives appear to be increasingly calling the shots. Yet as The Blockheads’ band leader Ian Dury might have said, there are reasons to be cheerful.
A 50-year-old tech startup founder is 2.2 times more likely to be successful than a 30-year-old.
A 50-year-old startup founder is 2.8 times more likely to be successful than a 25-year-old.
A 60-year-old tech startup founder is 3 times more likely to be successful than a 30-year-old.
Not everyone works in tech, though I find it reassuring to know that founding a successful startup isn’t the exclusive preserve of the young, and that the younger business founders aren’t always the best. In my role as an independent crowdfunding adviser I have met many startup founders of all ages. It is always dangerous to make sweeping generalisations, though the high value of transferrable skills and just general understanding of how businesses run is much stronger among older founders. They appreciate far better how solidly things have to done, how robustly claims and plans have to be validated, and that hope isn’t a strategy.
10 top tips for a career change
I’ve been made redundant twice, and worked for a company that folded and left us all high and dry. I know how former salaried employees in their 50s feel, and I offer my ten top tips on setting out in business alone.
Doing new things, outside of a comfort zone previously full of support, is scary. You’ll get through it.
Most of your previous contacts have become useless because they were part of that former comfort zone, your former life.
Reconsider the people who you know, and build connections among a new group of people who are going to be able to help you.
Think equally about how you can help them, relationships will not be built just on how they could help you.
It’s difficult to achieve a target daily pay rate, so do what comes up that looks like it would be good to be involved with.
But don’t forget that time is your most precious asset, particularly when starting a new enterprise later in life.
What you knew before is not going to be enough. You should remain curious and love learning. This is now easier than it ever was with the range of material available online.
Add practice to your knowledge, by simply getting out there to start providing others with the benefits of your knowledge and skills. Even work free for a local charity or community group rather than keep them to yourself. This will help teach you how to best present that knowledge in a way that builds confidence.
Confidence is what your new customers, and maybe later on partners or investors, will recognise and buy in to.
Work with people you like, who respect you, and pay you on time. Life’s too short to do otherwise.
If you want to know more about crowdfunding, either as a means to check consumer demand for a new product, or to raise finance for a business to grow, you could start by following me on Twitter. I also regularly write articles about crowdfunding for Crowdsourcing Week. When you’re ready for a conversation, please first email me at [email protected]. I am an independent crowdfunding adviser, providing objective and impartial advice with no ties to any particular crowdfunding platforms.
My work with Crowdsourcing Week as a content marketing creator and as an independent crowdfunding advisor has brought me in to contact with crowdfunding experts and thought leaders from around the world. We have talked about reward crowdfunding, equity crowdfunding, and crowdfunding being used by major corporates. I’d like to share some recent insights.
Key lessons learned at the ECN include the realisation that at whatever stage of a company’s growth, in addition to raising money, successful crowdfunding involves, builds and strengthens communities. Though in an increasingly competitive environment this requires expert communication skills.
An equity crowdfunding project should make it clear what it is asking for; what the organisation raising the money hopes to achieve; and who will benefit. Any funder can go on to become a customer, an advocate, or a supplier. So keep communicating after the crowdfunding closes, share news about your progress through achieving milestones or report on KPIs.
As well as improved professionalisation of all aspects of the process, regulations are adapting to crowdfunding being a global practice. Funds need to flow freely to encourage cross-border financing, though authorities have to be aware of laundering. European harmonisation through the ECN will ease cross-border payments from outside the EU – including the UK.
Evolving best practices in Reward Crowdfunding
New Zealander Nathan Rose is a crowdfunding strategist and author, his latest book is about reward crowdfunding. Across several years he has been able to track changes to what used to be, and what are now, the key factors for rewards crowdfunding success.
Crowd-building and effective communication strategies have definitely changed over the years. For example, these days, many more successful projects have used paid-for social media advertising.
Though project owners should not rely on purely virtual contact – he recommends getting out to events and meet influential people in person. Though beware of trade shows where more people are likely to be like yourself, looking for investment, rather than be potential backers.
PR efforts to crowdsource media coverage remain a valid activity, though not for the reasons you might expect. A published article is unlikely to generate much traffic to a crowdfunding project, though a collection of media logos is a strong endorsement of the viability of a project once site visitors see them.
Nathan also warned of a classic error. He still comes across project owners who calculate the production cost of the rewards they will supply, and set a donation value without checking the fulfilment costs to deliver the items. Seemingly successful projects can then sometimes incur a loss for the project owner, or are simply abandoned leaving many disappointed backers.
Tips for startup founders on running Equity Crowdfunding
Cheryl Campos, Director of Growth and Partnerships at the US equity crowdfunding platform Republic. Cheryl provided the article’s main image on a general timing plan for an equity crowdfunding project.
Before accepting an investment opportunity to put to its network of half a million investors, Republic uses four important criteria to evaluate startups: “The 4 Ts.”
Team A startup funder has to have prior career and industry experience that adds up to a set of skills and expertise that can give investors confidence. But few investors will back a one-man (or woman)-band, and want to see a credible management team already in place, a team that has bought in to the founder’s vision of the startup business and have the ability to make a solid contribution.
Traction Evidence of traction includes a passionate and engaged user base. Perhaps this has been achieved by an earlier round of rewards crowdfunding?
Technology Is the startup’s product range superior to competitors? Or maybe their technology to make their products is superior, delivering a cost advantage. Are they following the sector’s traditional business model, or have they developed breakthrough innovations to shake up the established incumbents?
Terms The terms a startup offers investors can vary, based on different methods of estimating a company valuation and with different classes of preference or voting shares, for example. It could make it harder to reach a financial target if crowdfunding backers receive poorer terms than other investors.
Corporate use of Crowdfunding
Esben Bistrup Halvorsen, Co-founder and CEO of Danish platform Lendino, gave a Crowdsourcing Week webinar some examples of major corporations using reward crowdfunding.
Sony has a co-creation and crowdfunding platform called First Flight, which operates within Japan only. It encourages entrepreneurial “Challengers” to propose ideas and suggestions for new products and services and allows them to canvass for input and support among a community of Sony fans and early adopters.
Fleshed-out ideas that have withstood this crowd’s scrutiny can then go on to a reward crowdfunding stage to check for demand to actually acquire the product or use the service. Where response from Sony’s First Flight crowd is strong enough to warrant investment, Sony makes the products and services available. Who knows, someone may come up with the best idea since the Sony Walkman!
Thinking about your own Crowdfunding?
In this most recent stage of my marketing career I’ve immersed myself in crowdfunding for the past six years. The crowdfunding projects you see hosted on any of the crowdfunding platforms are like looking at the 10% of an iceberg that’s visible above the water level. If you want to know the full extent of what has to be prepared to achieve success, let’s have a call. In the first instance please send an email to [email protected]
Governments the world over are encouraging more people to use bicycles, and various forms of crowdsourcing are used to support their efforts. This article looks at co-creation to map popular cycle routes in a city; automated sensors and data collection to monitor traffic levels in smart cities and control the flow; and the use of civic crowdfunding to steer local authority decision-making and influence local residents and other stakeholders.
At a macro level the benefits appear to be evident. Reduced traffic levels reduce congestion and air pollution. The built environment needs less space used for parking. A fitter and healthier population puts less pressure on the health services.
At a personal level, cyclists feel empowered by measures they are taking to protect the environment and improve their physical fitness. And right now, cycling is being promoted to reduce the number of people using public transport to help maintain social distancing.
The GB Bicycle Association reported that in the first full month of lockdown, April 2020, sales of bikes priced at between £400 and £1000 more than doubled compared to April 2019 (rising by 112% in number, 99% in value). A UK Government scheme offering online vouchers for use as payment towards repairing old bicycles to a state of roadworthiness crashed under the weight of overwhelming demand.
Co-creating route maps
Road safety remains the paramount issue, more so among female cyclists. A crowdsourcing project in the Indian city of Bengaluru, run by the Directorate of Urban Land Transport (DULT), has asked the city’s cyclists for details of their favoured routes through the city, and where they would like dedicated cycle lanes installed. DULT’s aim is to team up with the city civic body and create an initial 34 km network of routes in the outer parts of the city before working into the centre, eventually making the whole city more cycling friendly.
It follows a similar exercise carried out in Kuala Lumpur, Malaysia. Car ownership stands at 93% of households, the third highest level of any city in the world, and much of the city centre is a cycle no-go zone. The bold efforts of Jeffrey Lim, a keen cyclist and vintage cycle restorer, saw city authorities earmark a $765,000 budget to create the city’s first cycle lanes.
Smart city traffic management
Many major cities have bike-sharing schemes. In 2015, Barcelona launched its “Bicycle Strategy for Barcelona” government measure, which encouraged increased bicycle use as a habitual mode of urban transport. Its ‘Bicing’ bike share scheme was suspended when emergency measures were first introduced to tackle Covid-19 in April 2020, though from the start of June the network was re-opened with 97 new hire stations planned, and more than 1,000 additional new cycles available.
Beyond bike-sharing, Copenhagen has installed intelligent traffic signals that prioritise bikes and buses over cars. This system can potentially reduce bus travel time by 5–20% and cycle travel time by 10%. Copenhagen has also built a citywide network of protected bike lanes, as laid out in its strategic plans published in 2011. Local authorities across the country collect as much data as possible, both quantitative and qualitative, to inform their decisions on anything related to cycling.
Transport for London similarly uses video sensors with artificial intelligence capability at 20 locations across London to detect the volume of different modes of transport, especially cyclists and pedestrians. This data will be used to assess demand for new cycling routes in the city.
Civic crowdfunding for cycle routes
Crowdfunding has been a successful way for several cycling related startups to sell products and launch a business through selling equity. I’ve seen projects for cycle wear that lights up at night time, bicycles made of bamboo, even a cycle repair business based on a barge travelling up and down English canals. Though there does remain an element of hostility from a minority of motorists – and pedestrians, understandably, when confronted by a cyclist using the pavement.
Hostility, or at least deserved wariness, runs both ways. I‘m a regular cyclist, and I’ve had two shoulder operations due to accidents caused by a car drivers and a passenger. I also know what it’s like to be abused by drivers for things like not being able to go as fast as they’d like me to, or for being annoyed when they turn across me without indicating. So I do have a personal interest in dedicated cycle routes.
Critics of such routes complain they restrict road widths for vehicles, actually increasing congestion and journey times, and pushing higher traffic levels on to roads that were previously less busy.
Civic crowdfunding can not only raise some of the cost of cycle routes to influence local authority decision-makers (more usually design and feasibility studies than actual construction costs), but can also operate as a marketing initiative to influence residents and other stakeholders in a community.
This strategy worked well in Denver (fantastic place, 360 days a year with sunshine!), when Colorado’s biggest city built its Arapahoe Street protected bike lane. Community organisations engaged residents and business owners early in the design process, and this made a huge difference. The Downtown Denver Partnership, a local business group, initiated the project based on what it had heard from business leaders. To build on this public support, it launched a crowdfunding campaign to cover $35,000 of the design costs.
“Letting communities vote with their dollars isn’t just about budgets. It is much more about letting local residents and businesses know early on about the project and allowing them to participate in a meaningful way,” said Kate Gasparro, Graduate Research Fellow of Sustainable Design and Construction, Stanford University.
Three ways crowdsourcing is boosting cycling
Whether it’s research among cyclists drawing their favoured routes on paper maps, sophisticated traffic management technology in smart cities, or civic crowdfunding to let all elements of a community input ideas as well as raise money, the effects are boosting the takeup of cycling the world over.
I originally wrote this article for Crowdsourcing Week. Please contact me if there’s anything you’d like to ask or discuss about running a crowdfunding project. Email me at [email protected]
Various forms of crowdfunding enable startup businesses to inexpensively test market new products, and for private companies to trade equity in exchange for an investment from new shareholders. However, perhaps it’s my time spent sailing at Greenwich Yacht Club, as well as my work as an independent crowdfunding advisor, that recently drew my attention to two very well established businesses that are currently using crowdfunding to pursue a range of objectives.
Rancourt is a US family-owned and run business that has been making handmade moccasin-style shoes, popular with “yachties,” since 1967. They subsequently expanded their range to include boots, dress shoes and leather sneakers. Today, like many other businesses the world over, and despite its good reputation, Rancourt is suffering under Covid-19 lockdown restrictions.
Through their own website, they have started offering shoes in a limited number of styles on a rewards crowdfunding basis at wholesale prices. They will collect orders to a threshold of around 150 pairs per style, then make shoes in batches of 300. This will ensure they don’t produce an over-supply of stock that will tie up their stretched cash resources and then simply gather dust.
There are several benefits to trying to generate business even if it will not make them much immediate profit.
It will keep their artisan workforce employed
It will generate business for their supply chain
It gives new customers an opportunity to experience their premium products at an advantageous price
The cash income will contribute to central overheads
They will avoid producing unwanted stock
In crowdfunding terms this is known as the “All or Nothing” model. A crowdfunding project can ask people to pre-order, while also setting a minimum total order figure. That figure will be calculated to cover the raw materials, ‘tooling up’ and all other costs of a first production run, plus delivery of the finished goods.
If the stated minimum target is reached, production goes ahead on a de-risked basis. If it isn’t reached, any pre-payments are returned to customers and the product creators can have a rethink without having incurred costs of producing unwanted goods, hiring storage space or servicing a debt.
In the UK, crowdfunding operates outside the Sale of Goods Act. Due to the time it could take to reach the minimum order total, and produce and deliver the goods, some of the earliest ‘purchasers’ may have to expect to wait longer than 28 days to receive their orders.
The second sailing-related project I noticed is being run by a Swedish engineering company, GreenStar Marine International. They have been in business almost 20 years and make a range of inboard and outboard electric motors for all types of recreational boats.
They have no protected intellectual property in their motors, and now that sustainability and safeguarding waterways is a higher priority for many boat owners and users, GreenStar want to expand their silent-running and fume-free product range and dealer network faster than they would be able to through organic growth.
They are offering equity in the business to investors who will become shareholders, and thus share the risks and rewards of company ownership. Crowdfunding has democratised the business fundraising process, that was previously available mainly to people with access to “old boy networks” of VC investors or high net worth individuals.
At the time of writing GreenStar Marine International had raised 131% of their target with 69 days still to run.
With almost two decades’ experience of running their business, they are confident of a high rate of return for investors when they go ahead with an IPO planned for late 2021. Though capital is always at risk, and nothing can be guaranteed.
To learn more about Crowdfunding, registration is now open for free tickets to an all-day webinar on August 27 featuring a range of international speakers. The link gives further information.
In the meantime, feel free to contact me if you are considering crowdfunding to test a new product, to launch a new business or expand an existing one. I am an independent crowdfunding advisor, uninfluenced by formal ties to any specific crowdfunding platforms. Email me at [email protected]