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How Do Money, Innovation, And Democracy Make Rewards Crowdfunding Work?

Reward-based crowdfunding platforms such as global giants Indiegogo and Kickstarter are wildly popular around the globe. Every year, people use these platforms to transfer billions of pounds/euros/dollars to help artists deliver creative productions and content, and for entrepreneurs to develop new products and services. Though what can explain why and how rewards crowdfunding works, what motivates people to give their money?

The money is not given as charity donations. The backers obtain no financial benefits, there are no legal guarantees that their money will be used as originally described, and there are no reimbursement options. These unfavorable conditions led two American academic authors – Andre F. Maciel (University of Nebraska—Lincoln) and Michelle F. Weinberger (Northwestern University) – to ask why do so many people contribute to crowdfunding. In short, what makes reward-based crowdfunding so successful? The answers are enlightening, and are transferable to equity crowdfunding.

Key findings of why crowdfunding works

The two authors collected qualitative data from crowdfunding consumers, producers, and platforms to reveal the sociocultural underpinnings of this funding model. They found that a major part of why crowdfunding works is that platforms do more than create a technical infrastructure for consumers to transfer money to producers: they also create a mythological foundation.

Through storytelling, platforms cast crowdfunding as a route to create a more democratic society in which ordinary people (rather than banks or wealthy investors) can decide and finance the products that should exist in the market. Consumers then gladly gift their money to entrepreneurs and artists fundraising on these platforms, financing their innovation ideas interest-free. In many instances, they don’t usually receive any tangible return on their investment beyond something like a mug or a T-shirt.

Transactions replaced by social contracts

A second part of why crowdfunding works is that instead of a legal contract, crowdfunding platforms establish with consumers a “social contract” based on noble collective goals and intangible returns.

Backing a crowdfunding project comes with risks, and project backers do not receive the same protections as people buying an item from Amazon, eBay, or anywhere else.

Kickstarter gives a warning to potential project backers: “Unlike sellers on eCommerce sites, creators on Kickstarter do not automatically breach their contract with backers if they do not fulfill their rewards or provide users with a full or partial refund.” Similarly, reward-based crowdfunding backers have no recourse if creators fail to pursue or complete the innovative ideas that were their reason for asking for money.

Intangible rewards

However, in exchange for their financial gifts to support market democratisation, these project backers derive four unique forms of intangible value. 

  1. They get to express their tastes by selecting the innovations that they deem worthy of existing in the market—an opportunity that stands out from their conventional experiences as mass consumers elsewhere. This opportunity is even more significant because their tastes are often niche, patterning the immaterial value of “individualistic democratisation.” 
  2. As producers provide updates on their projects’ progress, consumers relish peeking behind the scenes of the entrepreneurial journey, acquiring the immaterial value of “insider knowledge” in their oft-niche areas of interest. 
  3. Consumers derive excitement from betting some money on the ideas of typically unknown producers. When these producers fulfill their projects and send their supporters some reward -typically symbolic tokens and an early version of the crowdfunded project – these consumers experience a “reciprocity thrill.” 
  4. Finally, crowdfunding consumers derive the immaterial value of “vicarious success”: the experience of getting a flavour of the glow of successful entrepreneurship while taking on little risk.

Reward-based crowdfunding’s main limitation

Beyond the consumer/project backers risks, the academic authors also articulate another important limitation of reward-based crowdfunding. 

For creators, reward-based crowdfunding finances many projects that would not receive bank loans or venture capital for lacking a clear profit potential, a trading history, or due to limited ambition.

Crowdfunding as an alternative means to support the creators tends to attract a specific segment of consumers: well-educated professionals involved in industries focused on producing knowledge, technology, and entertainment. These consumers tend to support projects they deem “cool.” They channel money to innovations that match their tastes, hardly ever picking projects based on the potential to broadly enhance social equality or welfare. 

Campaigns in areas such as music, film, publishing and games are more likely to succeed. Crowdfunding does finance many types of projects, but not as democratically as it first seems. 

Key takeaways

Crowdfunding has become a recognised and accepted branch of the digital economy. It is not used only by upcoming entrepreneurs and artists. Universities, museums, churches, and media organisations (including Wikipedia and The Guardian newspaper) regularly run campaigns to raise money from large numbers of people to create and enhance their market offerings. 

As such, this new research on why crowdfunding works is timely in three main ways: 

  • It sheds light on the consumer appeal of the crowdfunding model; 
  • it brings into relief the role of platforms in shaping the meanings of the digital economy; 
  • and it calls into question these businesses’ egalitarian claims.

Fuller research findings were published in the Journal of Consumer Research, and a version of my article first appeared for Crowdsourcing Week, where I began writing content on aspects of crowd finance in 2016.

I am an independent crowdfunding adviser, with no attachments to any specific platforms. Please contact me with an email to [email protected] to find out if I can help you with any ideas you may have of using crowdfunding. To search my blogs for other content you may find useful use the Search facility at the top right of the page.

Why crowdfunding works so well for craft beer brewers

Why crowdfunding works well for craft beer brewers

Crowdfunding is a proven and popular way for craft beer brewers to raise money to expand or accelerate growth, or even to start in the first place. It is also a popular way for many thousands of beer drinkers to be able to say “I own part of a brewery.” Here is what I consider to be the key factors.

Funding sources for craft beer brewers

Crowdfunding is popular with craft beer brewers because there are few barriers to using it, beyond the hard work it involves. And many brewers already have a crowd of buyers and drinkers to appeal to who consume their products on a regular basis.

Bank and P2P loans are restricted to businesses that are already trading, with an income and a future order book that looks solid enough to make the repayments. An existing brewer may be able to secure a bank loan, but a new startup won’t. Banks also require guarantees against loans, and if a brewery goes bust its owners will still be liable for the debt. That’s not a comfortable feeling.

As for VCs, the craft beer sector is very fragmented with many small players. From 2018 to 2022 the number of UK brewers grew from 1,489 to 2,426.

Number of breweries in the UK from 2018 to 2022

Graph showing the number of UK breweries

             Source: © Statista 2023

Organic growth is typically slow. It can be difficult to scale fast as it is the antithesis of being a craft product. An exit strategy of an eventual sale to a big drinks company would be difficult to achieve as they have already had their pick of the crop. The Budweiser owner, AB InBev, acquired Camden Brewery; SABMiller purchased Meantime, which was local to me in Greenwich, south east London; Carlsberg took over London Fields; and Heineken acquired Beavertown, founded by Logan Plant, son of the former Led Zeppelin vocalist Robert Plant.

As well as limited opportunities to scale, many of the newcomers seeking funding don’t want to raise enough money for VCs to even consider them in the first place.

Crowdfunding is flexible

During Covid, several brewers turned to reward-based crowdfunding to ask customers for their support. Pre-Covid, the Manchester Union Brewery had relied on keg sales in on-trade outlets. When lockdown closed the pubs, they asked their community for donations to install a canning line that would enable them to switch to online orders for home delivery. Incentives to support their appeal included discounts off future purchases, shorter waiting times for deliveries, and inclusion on a “Wall of Honour.” It raised £46,141 from 617 supporters in 64 days.

This method of crowdfunding continues to be used by breweries to raise money to build or expand taprooms (which are on-site public bars). As an example, in March 2021, the Skinners Brewery in Cornwall raised £152,301 from 2,449 supporters in 28 days to build an outdoor drinking area at its site in Truro. Perks for donors included beer vouchers, tickets to exclusive events, branded merchandise and online sales discounts.

Skinners Brewery in Cornwall raised money through crowdfunding to build its outdoor drinking area

Bringing forward demand to generate pre-payment by offering beer vouchers can ease short-term cashflow issues, but has to be carefully judged so that those issues aren’t merely delayed until another time.

Many startup breweries offer shares in the business through equity crowdfunding. One running in November 2023 was Signature Brew, whose business model is to brew collaboration beers with bands and musicians. Founder and CEO Tom Bott had exceeded the £700,007 target for 4.59% equity by +25% with a few days left before the round closed.

Crowdfunding is popular with startups, but not it’s exclusively for startups. Exmoor Ales was established in 1980, and in March 2024 it closed a crowdfunding round that had raised £330,048 from 329 investors. Perks for investors included the standard branded merchandise, discounts on online orders, and a limited amount of free beer for life for larger investors as long as they remained a shareholder.

Good crowdfunding is good marketing

Running a crowdfunding campaign can generate significant media coverage and social media buzz. It serves as a marketing tool, creating awareness about a brewery and its products. This increased visibility can attract not only backers but also potential customers.

In 2023, the southeast London Gipsy Hill Brewery brewed the first carbon-negative beer without using offsets. In October ’23 they began a round of equity crowdfunding and announced their aim to be the world’s first carbon-negative brewery by 2030. The crowdfunding raised awareness of the brewery’s carbon reduction accomplishments to date and future aims. The founder and CEO was interviewed by the Sunday Times, and a television station camera crew turned up to film him at the brewery.

Crowdfunding empowers consumers

Benefits for backers

The most commonly hoped for outcome from investing in an equity crowdfunding campaign is a good return on investment. The founder of Camden Town Brewery, Jasper Cuppaidge, used equity crowdfunding in 2015 to raise £2,749,860 to build his own brewery in London. The amount of equity this involved meant the brewery was valued at around £50 million. Eight months later, having come to its attention, and seeing the extent of its public support (good crowdfunding = good marketing), AB InBev bought Camden Town Brewery for an estimated £85 million. In under a year, the 2,172 crowdfunding investors had secured a 70% return.

Successful crowdfunding does not always mean that a brewery will go on to achieve long-term commercial success. There is a risk. After 25 years the Skinners Brewery in Cornwall was forced to close in October 2022, despite its new outdoor venue paid for with crowdfunded donations.

However, small-scale investors know that a low entry cost to buy some shares can be recovered through using the online discounts that are often offered as perks. When they have saved enough money it effectively means they have reached a breakeven point and become a shareholder at no cost.

When businesses are registered under the HMRC’s EIS and SEIS schemes, crowdfunding investors who are UK taxpayers can reclaim from 30% to 50% of their initial investment. Any eventual return on investment is outside of Capital Gains Tax, or if the business sadly fails then even more of the initial investment can be reclaimed through the taxman.

Beyond ROI, sociable investors like to meet like-minded people at investor events, and can visit a brewery’s taproom bar at any other time to seek out kindred spirits.

Some investors like to invest in several breweries to create an annual schedule of perks of free or at least subsidised beer deliveries at home.

And of course there is the opportunity to drop “I’m a part owner of a brewery” into conversations.

Non-monetary benefits of a brewery having a crowd of backers

Crowdfunding is not just about raising money; it’s about helping to build a community around a brand or a business.

New crowdfunding research findings reveal that crowdfunding backers enjoy a sense of deciding which companies and products will make it to the marketplace. It gives them a tenuous link to the buzz of entrepreneurship with little personal risk – depending on the size of their investments.

I believe it’s then reasonable to consider that having contributed to the existence of a brewery, its new brewing equipment and premises, or a taproom, the crowdfunding backers will be very loyal.

Regular visitors to a brewery taproom can be encouraged to try limited quantities of new beers and give their feedback. Or packaged products could be delivered to crowdfunding backers at home. This form of product validation helps decide which new beers to take to full production.

Brewery supporters, whether investors or donors, can also be very useful as brand advocates. They can give word-of-mouth support and encourage friends and colleagues to try a brewery’s products. They may be able to provide vital business connections and make introductions, and also personally offer to provide a range of services from accountancy and legal advice to decorating offices and servicing vehicles.

To summarise, beer is a product that relationships can be built around, rather than simply regard an investment through crowdfunding as a transaction. Anyone who leaves it at just taking the money is missing a trick or two.

Crowdfunding’s popular for food and drink brands and restaurants

Food and drink crowdfunding examples October 2023

Of the crowdfunding campaigns and related news I noticed in October there was a high proportion that were food related. This includes startup food brands and restaurants. Entrepreneurs and startup founders in these sectors have identified that as well as raising funds to invest in the business, well planned and executed crowdfunding also represents good marketing.

Crowdfunding for food and drinks brands can stimulate trial, prompt consumers to ask for them in their local outlets, and increase brand loyalty among existing users who can become investors. New shareholders can also become valuable customers in a virtuous circle that gives crowdfunding backers a strong motivation to become brand advocates and ambassadors.

Similarly, crowdfunding used by restaurants can bring forward consumer demand and have them pay now for meals they will enjoy at a later date. From burger and coffee chains to Michelin-starred restaurants, it provides customers with a talking point to recommend a favourite place to go to friends and colleagues. Perks such as limited places for cookery lessons, or even meals prepared by chefs in crowdfunding backers’ own homes can deliver a wow-factor to make the backers feel special, and once again give them a talking point.

Crowdfunding backers also have the chance to get to know about the people behind startup food and drink brands, and restaurants, and maybe identify with their broader aims from an increasingly ESG or community asset perspective.

Crowdfunding by Restaurants

Chefs Lewis Dwyer and Andy Aston opened their independent Michelin Star restaurant called Hiraeth in Cowbridge, Wales, last November after raising £30,000 of reward-based donations through crowdfunding. They now need new premises after the landlord unexpectedly decided to sell the property.

Chef Merlin Labron-Johnson had already beaten his £125,000 crowdfunding target with 10 days left to run. He was raising money to relocate his farm-to-table restaurant Osip 2.0 in Somerset. His crowdfunding went on to achieve £166,261 from 464 backers to help bring this project to life. As perks, he offered branded restaurant crockery, chocolate cookie tasting sessions, hampers of mixed goodies, lunch and dinner at the restaurant for groups up to eight people, and home cooked meal for fifteen, and tickets for an exclusive opening night party.

Equity crowdfunding by London-based Honest Burgers’ closed after raising almost £3m. The casual dining restaurant group soundly beat its £1m target, raising £2,905,631 from 3,456 investors. It will now open further restaurants and launch a new quick-service burger.

Founded in Barcelona in 2020, startup coffee chain GoodNews is soon launching a round of equity crowdfunding after three previous seed and Series A funding rounds, which have already raised €15m (£13m). Good crowdfunding can be good marketing and attract loyal customers.

Startup founders Florin Grama and Felix Ortona Coles met while working at St Barts restaurant in London’s Smithfield Market area. In October they began reward-based crowdfunding to raise £20,000 for the final pieces of equipment they needed to open their Tarn Bakery in Highgate. Perks include classes to make croissants, sourdough pastry and pasta. By October 29 they had reached £15,242 with eight days left to run.

Crowdfunding by food and drink startups

With the growing demand for minimally processed and natural plant-based food, Tempeh brand Better Nature has launched another round of equity crowdfunding as part of a £1 million-plus raise to drive retail growth for its meat alternative range across the UK and Europe.

Hertfordshire-based SRSLY Low Carb has signed an agreement with a food distributor that services leading supermarket chains in all 50 US states. To support global growth, SRSLY is embarking on a seven-figure equity investment round which includes a round of equity crowdfunding in November with a minimum target of £500,000.

Earlier this year, craft beer maker Gipsy Hill Brewing in southeast London launched the world’s first carbon-negative beers, achieved without relying on carbon offsets. A new crowdfunding campaign in November will help them accelerate their climate-positive agenda. The brewery ran its first equity investment round in 2022, in which 581 investors joined its community and invested £865,149, 130% above Gipsy Hill’s target.

A former City analyst founded the Cheesegeek food marketplace platform in 2017 to connect artisan cheesemakers with consumers. Edward Hancock now hopes his equity crowdfunding campaign in November 2023 will raise £150,000 so he can start a forum for cheese fans, with investors invited to develop a new variety.

French plant-based food brand La Vie closed its equity crowdfunding in October with 2,691 backers investing €2.1 million. La Vie, whose UK headquarters are in London, used the Crowdcube platform which through its Barcelona office is authorised to run crowdfunding campaigns throughout the EU as well as in the UK. La Vie’s multi-award-winning plant-based alternative to bacon is available in 13 European countries. The brand claims to have so far saved over 90,000 pigs and 2 million tonnes of CO2.

Considering crowdfunding?

If you are thinking about running crowdfunding, and in any sector, not just crowdfunding for food brands, the most common mistake is to not allow enough time for preparatory work. This can include building larger networks of followers, and for those considering equity crowdfunding the platforms will require you to have lead investors prepared to guarantee a minimum of 30% of your target raise.

I am an independent crowdfunding strategist and adviser, unattached to any particular crowdfunding platforms. Please get in touch for objective advice and insights into your plans, and maybe hands-on support if you decide you want it. Send an email to [email protected] to get started.

A Snapshot of Small Business Crowdfunding Projects

Examples of small businesses using crowdfunding

Crowdfunding’s a great way for small business owners to raise alternative funding that’s usually not enough for VCs to be interested. An article published in September 2023 by Small Business Trends gave an overview of five types of crowdfunding, plus five benefits that crowdfunding delivers.

Crowdfunding can certainly do more than just raise money for a business, and here are more than five benefits.

  • Crowdfunding can provide social proof and product validation to show that startup business founders are going in the right direction.
  • It can also be used by existing businesses of any age to develop new products and expand.
  • Early crowdfunding backers can provide valuable feedback as a business tries to fit all the pieces of a jigsaw together to achieve success.
  • Early backers can also become brand advocates in a virtuous circle that allows customers to become investors and investors can become important customers.
  • Pre-orders can de-risk the first production run of a new product, and even multi-national companies including Sony, Coca-Cola and Mattel have used crowdfunding to test consumer demand. 
  • Crowdfunding is very flexible and not only for consumer-facing businesses. Although it’s not exactly small these days, B2B mineral extraction company Cornish Lithium has just closed a crowdfunding round having raised £5.1m.
  • Whatever type of business you have, a well planned and executed crowdfunding campaign also provides great marketing support to build awareness of a business and attract interest. Get in touch if you want to discuss your ideas.
  • Crowdfunding opportunities can also appeal to everyday retail investors who choose to support companies that are active in certain specialist business sectors.

Fashion

Recycled clothing is becoming more and more popular as awareness grows of the amount of waste in the fashion and clothing industry. Immaculate Vegan is an upmarket vegan and sustainable fashion platform. Encouraged by 56% year-on-year sales growth, it launched an equity crowdfunding campaign that closes/closed on September 26. Its target was £200,000 – it reached over £300,000 from more than 300 investors.

Cycling

There have been many successful small business crowdfunding projects in the cycling sector. I guess they appeal to people who want to invest in businesses that may help get people out of cars and tackle air pollution.

Two years ago, the Smart Tyre Company startup in Ohio, USA, developed an airless tyre for road bikes in partnership with NASA. They claim they have both the elasticity of rubber and the strength of titanium, and made them available through crowdfunding on Kickstarter. With 16 days to go at the time of writing, almost 300 backers had pledged just short of £125,000 to order a set of the innovative bike tyres.

Scottish startup Intra Drive is also using equity crowdfunding, through Crowdcube, to help bring its new 8-speed mid-drive for e-bikes to market. The redesigned e-bike motor comes with enhanced efficiency that simplifies manufacturing; a lighter gearbox; integrated electronics; an innovative display interface; and it is easier for manufacturers and consumers alike to fit it.

Healthtech

Healthtech startup AudioTelligence launched a crowdfunding campaign for its hearing enhancement device. Having decided to go-it-alone rather than sell out to an established rival, their small business crowdfunding goal is £400,000 to fund the manufacture of an initial batch of 1,000 units. Feedback from these early backers will be very valuable to aid product development.

Sport

The company that owns both the Cornish Pirates rugby club and Truro City football club in Cornwall, Kernow Sport, has raised over £413,000 from nearly 500 investors by offering equity through crowdfunding. It’s the first stage of raising a £2.5m total as the main benefactor begins to wind down his personal investment in the two clubs, reported the BBC.

Small bsuiness crowdfunding can support sports clubs like the Cornish Pirate rugby team

Community-based projects

The legendary Filmhouse Cinema in Edinburgh is raising the first £250,000 of a total £1.25m needed to re-open with a 21 year lease in its existing building which is being refurbished.

By September 17, a 2021 Masterchef contestant was over 80% of the way to raising £35,000 through reward-based small business crowdfunding to help him open a new restaurant in Bishop Auckland, northeast England.

Proptech

Small buiness crowdfunding helps raise smaller sums than VCs are interested in

HouseStars is an AI-powered app that connects property owners with building trades people. It is 98% of the way to its £125,001 equity crowdfunding target on Seedrs. As at September 25 there were 23 days left to run. SEIS investor benefits are available, which for taxpayers include a rebate through the tax system of 50% of the amount invested.

Food and beverages

World Tea News reported that New York-based Leaves of Leisure, a luxury herbal tea brand with a focus on zero and low caffeine teas, has launched a crowdfunding campaign aimed at growing the brand and expanding into new markets. CEO and Founder Allison Ullo hopes to raise $50,000.

Crowdfunding, through offering equity or bringing new products to market, is definitely a strong option for many small businesses with big ambitions. I am an independent crowdfunding adviser, with no ties to any particular platforms. Whatever sector you work in, crowdfunding is very flexible and could play a role to help turn your innovation and dreams in to life-changing reality. If you’d like an objective assessment of how crowdfunding could provide a solution for you, and how close you are to being ready to use it, then please get in touch. Send a message to [email protected].

What are the main criteria for choosing which crowdfunding platform to use?

Crowdfunding platforms available in the UK

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.

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. User-Friendly Interface: A user-friendly platform with an intuitive interface can make it easier for both campaigners and backers to navigate and participate.
  7. Campaign Support: Check if the platform provides resources, guides, and customer support to help you create and manage your campaign effectively.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. 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.
  13. 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.
  14. Intellectual Property Protection: If your campaign involves a product or innovation, research how the platform handles intellectual property protection to safeguard your idea.
  15. 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.

Building Sound Foundations for a Startup Through Crowdfunding

Louis Timpany, founder and CEO of Fix Radio

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.

5 Reasons for Equity Crowdfunding Success

equity crowdfunding success for a doughnut company

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.

5. The company has also won multiple awards including being named the first-ever winner of the Online Bakery Business of the Year category at the 2022 Baking Industry Awards.

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.

What’s in store for donations crowdfunding?

Donations crowdfunding has already made a significant impact on the way people support charitable causes. Driven by social media and online platforms, it allows individuals and organizations to access a wider audience of potential donors and has made it easier for people to donate small amounts of money to causes they care about.

I’ve now been writing and publishing content for the international platform Crowdsourcing Week for nearly seven years. It covers all aspects of the crowd economy, and the technology that allows it all to take place. I was recently asked to look at trends in the donations crowdfunding sector.

So, what does the future hold for donations crowdfunding? To be clear, this article is not about crowdfunding that offers backers a reward of any kind – beyond the warm feeling people get from helping someone else. It is not about crowdfunding to invest in business equity, or to earn interest through lending on a peer-to-peer basis.

Please flip over to the Crowdsourcing Week site to read the rest of the article: https://crowdsourcingweek.com/blog/future-for-donations-crowdfunding/

How do you balance crowdfunding risks and returns?

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/

Secondary Market Adds Liquidity To Equity Crowdfunding

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.