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A Snapshot of Small Business Crowdfunding Projects

Posted on by Clive Reffell
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?

Posted on by Clive Reffell
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

Posted on by Clive Reffell
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

Posted on by Clive Reffell
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?

Posted on by Clive Reffell

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?

Posted on by Clive Reffell

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

Posted on by Clive Reffell

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.

Crowdfunding Co-ownership of Tangible Assets

Posted on by Clive Reffell
crowdfunding co-ownership of luxury assets

Property crowdfunding

The biggest asset class is property. Developers create individual companies for each development project, and decide whether to offer investors opportunities to buy equity or lend money.

Equity crowdfunding investments in US real estate on reputable platforms, with terms of 5 or more years, have an average annual return of over 17%. Shorter-term real estate crowdfunding investments have average returns in the 10% to 12% range.

I have made one modest equity crowdfunding investment in property and received a 28% gross return after two years.

The UK property loan platform Kuflink is currently offering annual gross returns of up to 7.44%. CrowdProperty is a much larger UK property crowdfunding platform (it has raised over £500 million in total) and is offering up to 8% p.a. for investments held in an IFISA.

A newer format of property crowdfunding allows retail investors to acquire fractional ownership of property that is leased or rented, and offers a regular income from it. Buy-to-let crowdfunding platform InRento, licensed by the Bank of Lithuania, has earned a historic average 19.49% ROI for its investors. It recently became the largest licensed crowdfunding platform in the EU by the number of investors, providing an opportunity to invest in rental projects. Projects currently listed on the platform offer an average 7.96% annual return.

Non-property luxury assets

Other platforms offer crowd investment opportunities in non-property, luxury item assets including fine wines, art, watches and cars.

Konvi is a European crowdfunding platform for people to invest through shared ownership of such luxury items. A holding company is created for every asset that is going to be funded. This holding company’s purpose is to own, manage, and sell that one particular asset. When a person invests in an asset, they become a shareholder in the relevant holding company that will exist for two to ten years. Average returns have been up to 20% p.a. over the past decade.

Konvi’s main competitors include Rally Road (USA), Masterworks (USA), Yieldstreet (USA), Otis (USA) and Timeless Investments (Germany).

The Masterworks platform makes it possible for anyone to invest in blue-chip art, with works by artists like Banksy. From 1995 to 2020, contemporary art prices outpaced S&P 500 returns by 174%, and it is part of an estimated $1.7 trillion asset class that is expected to grow 58% in just 5 years, according to Deloitte.

US equity crowdfunding platform StartEngine is currently offering equity in fine wine from Bordeaux, France. According to Wine Guardian, wine is a stable investment that has earned investors a solid 13.6% annualised return over the past 15 years.

Risks

Investing in luxury item assets is often beyond the control and protection of financial investment authorities. As well as poor decisions made on receiving poor advice, there is also the prospect of deliberate, fraudulent scams.

As an example, rare whisky has recently been the top performing UK luxury investment. According to The Wealth Report 2020, rare whisky was the best performing collectable of the decade, experiencing a meteoric rise in value of 586% up to 2019; faster than any other collectable luxury asset, such as watches, art or classic cars.

Whisky is not under the remit of the Financial Conduct Authority (FCA), which would only get involved if the investment was structured under a collective investment scheme.

HM Revenue and Customs is responsible for excise duty for whisky casks, approving persons to hold excise casks without payment of excise duty, while the whisky matures in a secure and approved excise warehouse. They would only get involved with a potentially fraudulent firm if it didn’t pay the correct tax.

Misleading investor advice through paid-for communications is under the authority of the Advertising Standards Authority (ASA).

Yet high returns attract undesirable actors, out to part the unwary from their wealth. And in unregulated markets, with plenty of grey areas, it can be easier to achieve.
– With alcohol there is no spot-price like with commodities such as gold to provide a common yardstick.
– Even if their was, the main problem with buying into whisky as an investment is that you don’t always know exactly what you’re getting.
– Identifying fakes, if it indeed exists at all, can be difficult, time-consuming and expensive. It could even involve lab-tests such as carbon dating.
Given time, NFT technology could make it quicker and cheaper for all stakeholders – investors, brand owners and enforcement bodies – to identify counterfeit products and distinguish fakes from the genuine article.

In the meantime, good advice for potential investors is they should fully research any firm they are looking to engage in an investment with. Look at the age of the company, the duration it has been trading whisky casks for, and whether there’s a valid Alcohol Wholesaler Registration Scheme and WOWGR licence (under The Warehousekeepers and Owners of Warehoused Goods Regulations 1999).

I am an independent crowdfunding advisor, providing strategic overviews of how to plan and structure a successful crowdfunding campaign, without links to any particular platforms. If you think that could be useful to you, please get in touch.

New UK Crowdfunding Platform CrowdInvest Will Offer Equity in Indian Startups

Posted on by Clive Reffell
Clive Reffell's interview of Nakul Garg, co-founder of crowdfunding platform CrowdInvest

Since January 2022 I have written numerous articles for what is going to be a new equity crowdfunding platform in the UK, called CrowdInvest. Its unique market position is that it will offer UK investors opportunities to buy shares in tech startups that operate primarily in India, which is the world’s third largest startup ecosystem. With a population approaching 1.4 billion, startups in India can seriously scaleup without the added complexities of developing or servicing a market in other countries.

CrowdInvest is a group entity of Red Ribbon Asset Management Plc, an Indo-British investment company established in the UK in 2007. Crowd Investments Limited is an Appointed Representative of Prospect Capital Ltd, authorised by the Financial Conduct Authority in the UK, and investor benefits will be available under the HMRC’s EIS and SEIS schemes.

I recently interviewed CrowdInvest’s co-founder Nakul Garg, an alumni of the London School of Economics. With his permission, here is that interview that was originally published at his LinkedIn account.

Let’s begin with something that many people ask. The Financial Conduct Authority approves CrowdInvest. Particularly for anyone new to equity crowdfunding, does this mean their money is safe?

Money is safe, and we will comply with all FCA requirements and vet the startups we will host to ensure they offer viable investment opportunities. We also ensure that lead investors back the deals and that the risks borne by retail investors are shared with them. However, the failure rate of startups anywhere is notoriously high, and the success of any individual startup cannot be guaranteed. Capital invested in private companies will always incur a level of risk.

UK investors who buy shares through equity crowdfunding enjoy valuable tax advantages when they invest in privately-owned UK companies registered under the HMRC’s EIS and SEIS requirements. Why will they choose to invest in Indian startups?

This is something we seriously thought about. Our solution is that we will require Indian startups to open a branch office to scale their operations in the UK. Doing so will make them eligible for the HMRC’s EIS and SEIS tax benefits. Also, we will onboard UK startups who are already eligible for EIS and SEIS tax benefits and wish to scale up operations in the Indian market.

So the CrowdInvest platform will also host non-Indian startups?

In the first phase, we will focus on startups located anywhere in the world who operate in or want to scale up in the Indian market. They will principally, though not exclusively, be Indian startups. In a second phase, we will onboard investment opportunities from African and south east Asian markets and open up opportunities for investors from other parts of the world. We will truly be a cross-border platform.

Does CrowdInvest have to be approved and regulated by any Indian authorities as well?

No, when we start trading, we won’t cater to Indian investors, so we are not required to be regulated by the Indian regulatory bodies. All our financial promotions will focus on UK investors, so we need to comply with only UK laws and regulations.

What investment options will CrowdInvest provide?

In the first phase, our focus will be on equity crowdfunding and convertible loans. We will start offering other alternative financial instruments as we grow our market penetration.

How will CrowdInvest win the trust of investors? 

We will make sure only vetted startups are onboarded on the platform. The vetting process will include rounds of preliminary checks and due diligence to ensure they have the required certificates, licences, intellectual property, and everything else in place per UK standards.

Other crowdfunding platforms have webinars for startup founders to pitch to potential investors and for investors to ask questions. Will you be doing the same?

Yes, we will, through panel talks, speed date sessions, virtual round tables and YouTube. CrowdInvest will also provide newsletter inclusions and social media promotions. 

With the market value corrections that have taken place this year in the startup space, it has been reported that Indian startups have shed over 11,000 employees, and several are now operating at valuations lower than their IPO. Is there any feeling you may have maybe missed the peak market?

In India,Inc42collects data and reports on the startup scene. They said a little while ago that 57 VC funds launched in 2022, 37 focus on early-stage funding. Seed stage funding in India in the first half of 2022 has been four times higher than in 2021. So whilst a market value reset has certainly taken place, many investors had already turned their attention to the higher ROI generally available from backing startups earlier in their lifecycle. This is where CrowdInvest will operate. So No, we haven’t missed out on anything.

That’s very positive to hear. We’re nearing the end of the interview. Can I ask you what is your own background in crowdfunding and what drew you to it?

I started in the crowdfunding industry three years ago and have since carved out a niche for myself in cross-border investments and fundraising in the Indian startup ecosystem.

I graduated with a Masters from the London School of Economics and gained more than eight years of experience in entrepreneurship and risk consulting, with an extensive background in business development and crowdfunding. My expertise lies in developing and maintaining strong client relationships.

I am also a recognised early-stage entrepreneur, endorsed by the LSE Entrepreneurship arm (LSE Generate) and incubated at IIM (Indian Institute of Management) Udaipur Incubation Centre. Additionally, I have worked with PricewaterhouseCoopers in Consulting and served US-based startups with their financials while working at a PCAOB registered firm (the Public Company Accounting Oversight Board).

That’s very impressive and well-rounded. A final question, if I may. Do you already have some longer-term aims for CrowdInvest?

We will certainly democratise platform ownership by running our own equity crowdfunding. Our vision is to become a crowd-owned alternative investment platform operating across international borders.

Thank you, Nakul. I wish you success. Thank you, Clive.

Using Equity Crowdfunding with VC Support

Posted on by Clive Reffell
Startup founders don't face a binaty choise of crowdfunding or VCs

This year I have been writing articles for an Anglo-Indian asset management company. They have been planning an equity crowdfunding platform that will enable tech startups in India to offer equity to UK investors. The latest news is they have received approval to go ahead from The Financial Conduct Authority and the platform, CrowdInvest, will launch on 1st September 2022. Anyone can register to be kept informed of news and progress at https://www.crowdinvest.com/.

Even not so long ago there were still articles appearing that tried to put crowdfunding and VC funding in opposite corners, posititoning them as rivals for the favours of startup founders who were seeking investment. The truth is that while there some limited of overlap, they represent different types of investors who have some different motivations and expectations. Here is a reduced version of the article I wrote on this topic.

Equity Crowdfunding with VC Support

Going to VC investors or using equity crowdfunding is often portrayed as a binary choice. In reality the two are not completely interchangeable. This article looks at similarities and differences, and some examples where they have been used together.

Similarities

Both forms of funding buy equity in a business for it to develop and grow. The businesses do not have to repay the money, it’s not a loan, though the business owners do reduce their level of ownership. Dividends aren’t required because investors expect to see profit reinvested.

Businesses do not have to be making a profit, or to have even started trading. VC fund managers and equity crowdfunding investors gauge future potential. Business sector knowledge and investment experience help develop analytical skills to identify the ones most likely to succeed.

In both cases the investments are relatively illiquid. Money can be tied in for several years, difficult to get back early, and of course a business may fail with all investments lost.

Investors want to know the Exit Strategy.

Differences

VC funds and equity crowdfunding platforms represent different types of investor. Those investing through VCs generally invest much higher sums and tend to be High Net Worth Individuals, or represent family funds or institutional investors. It is Strictly Business. VCs usually invest between £2m and £50m. Whereas crowdfunding’s non-professional “retail investors” use personal money, can sometimes back a business from as little as £10, and perhaps invest in businesses they simply want to give a chance rather than expect a healthy ROI.

VC funds therefore prefer close integration with businesses they back. This can involve a seat on the board, setting KPIs, releasing funds in tranches when certain milestones are achieved, making introductions, and advising the directors. They may also pressure businesses to agree deals or sell out at a time that suits the VC fund more than it does the company founders. A business with hundreds or thousands of crowdfunding shareholders is unlikely to experience such co-ordinated pressure on its decision-making.

Equity crowdfunding allows private companies to raise sums that are far below a level that would interest a typical VC fund manager. Yet at the same time they’re higher than could be expected from bootstrapping or contributions from friends and family.

Used in conjunction

Two trends have emerged.

1.        Before VCs become involved, the earliest startup investors have often already enjoyed the biggest ROI. Some individual VC investors want to feed nearer the top of the food chain. The response has been to launch Micro VC funds that focus on early stage startups. 

2.        Equity crowdfunding has established itself as a viable source of business fundraising and investment opportunities. Demand to be hosted on a crowdfunding platform allows them to be selective about the startups they accept. They receive payment only after successful projects, so they often give preference to candidates that already have high levels of guaranteed support.

These factors converge when VC funds become cornerstone backers of a business  that uses equity crowdfunding. VC backing can encourage more retail investors to get involved, believing that the VC’s due diligence checks must have found no cause for concern.

The Seedrs platform has a substantial network of long-standing relationships with top institutional and angel investors looking to invest in high-growth, high-potential businesses, and arranges meetings to help startup founders secure vital cornerstone founding.

Using both VC funding and equity crowdfunding is particularly good for a business that wants to recruit loyal customers. This applies to fmcg grocery brands as much as fintech startups. Committed customers can become investors, and investors can become valuable customers in a virtuous circle.

Examples of VCs supporting equity crowdfunding

Wealth management startup Moneybox raised £35m institutional cash in April 2022, led by Fidelity Ventures. Moneybox wanted some of its account holders to share in their future success alongside the institutional investors. 14,704 people became shareholders through investing £6.25m in May 2022 via equity crowdfunding.

Insurtech startup Cuvva sells short-term cover to drivers who don’t own a car but are able to borrow one. Its equity crowdfunding target was £2.5 million. By June 20, with two days left to run, they had achieved £3.26m from 2,835 investors. Three VC funds (LocalGlobe, RTP Global and Breega) invested £1.5m, 60% of the declared target.

Online art marketplace Artfinder raised £443,000 from 590 investors through a Crowdcube campaign in May/June 2022. This included further backing from VC firm Wellington Partners which brought its total investment to £5 million. 

Honestly Tasty makes a plant-based alternative to cheese. Their June 2022 equity crowdfunding had a £450,000 target, and Vegan investment fund Veg Capital contributed almost £250,000 – 55% of it. By June 20, over 350 backers had pledged more than another £425,000 with 16 days remaining.

Please get in touch if you are considering using any form of crowdfunding yourself. I have studied it for eight years and I will be able to advise you on how to improve your chances of success.