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.

Some Crowdfunding Projects in July 2021 Demonstrate its Flexibility

Reward based crowdfunding does more than raise money

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 funding through donations crowdfunding

Many of us are enthralled by top level sporting contests, and certainly the pinnacle in many sports is to take part in the Olympic Games. However, while commentators encourage feelings of national pride at GB success, funding varies hugely across sports; while some receive millions of pounds, others only receive thousands to get them through the Olympic cycle.  Also, several sports had their level of funding cut in the run up to the games in Tokyo, and many members of the GB team turned to crowdfunding to try and fill some of the gap and let them keep training as much as possible to compete at the highest level.

One such competitor was BMX rider Beth Shriever. Supposedly based on the likelihood of winning medals, funding for male riders stayed in place but female riders were left to their own devices. This meant Beth Shriever relied on crowdfunding donations made through the GoFundMe platform and a part time teaching assistant job to maintain her place in the team. Simply being in Tokyo was a major achievement, which the former junior world champion from Leytonstone topped by winning a gold medal.

Members of the GB Rugby Sevens squad found themselves in a similar position. After the home nation rugby football unions of England, Wales and Scotland cut their funding, a combined crowdfunding project was launched for both the men’s and women’s squad members on the Pledge Sports platform. Both the men’s and women’s teams reached semi-finals, and lost a playoff match to miss out on a bronze medal. Who knows how much their on-pitch performance might have been improved without money worries in the build-up not just to the Olympics but also other competitions they played in to keep fit and sharp?

Image source: @TeamGB

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.

A variety of crowdfunding projects spotted in July 2021
Source: Ready Burger

Another business in the meat-free food sector that recently used crowdfunding was Ready 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.

A variety of crowdfunding projects spotted in July 2021

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.

A variety of crowdfunding projects spotted in July 2021
Bronagh Conlon (right), MD of Listoke Distillery, with her daughter Sarah, director of sales. Photograph: Alan Betson

Are you considering your own crowdfunding project, whether on an equity basis or using a reward-based model to lauch a new product? I am an independent crowdfunding advisor with no allegiances to any particular platforms. I can provide you with an object view of your plan, help improve it, and perhaps operate as a Campaign Manager to co-ordinate its execution. Crowdfunding is flexible and adaptable. Are your plans maximising its opportunities and benefits? Email me at [email protected].

How to Run Successful Equity Crowdfunding

Expert Insights to Successful Equity Crowdfunding

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.Top Insights to Successful Equity Crowdfunding

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.

Expert Insights to Successful Equity Crowdfunding

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.

Lessons from 10 years of crowdfunding in Europe

Christin Friedrich, CEO of the Innovestment platform in Berlin, is also Chair of the European Crowdfunding Network.

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.

Expert Insights to Successful Equity Crowdfunding

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].

How Crowdfunding is Changing Business

How crowdfunding can turn a holiday idea in to business reality

For many startup entrepreneurs (and d-i-y investors who back them) the most significant form of modern day crowdsourcing is crowdfunding. Rather than trying to impress a single backer to support a business idea, perhaps through chasing a grant or bank loan, or by catching the attention of an elusive angel investor, crowdfunding has decentralized the process and enables business startups to ask crowds of people directly – some of whom they know and many they don’t – to each provide a relatively small level of support.  It also builds communities of followers and supporters, where customers become investors and investors become customers in a virtuous circle.

Favourable “light touch” treatment of equity crowdfunding (where investors pay for a slice of ownership of a business, and accept the risk that it may fail) by the financial regulators allowed the UK to emerge as the world’s market leader. Crowdcube was one of the first equity platforms to appear, in 2011, and it recently announced a total figure of more than £500 million invested so far in 700 funding rounds. The banking app Revolut and the Scottish brewery Brewdog, both currently worth over £1 billion, launched through Crowdcube.

Although some of the startups supported by crowds of sometimes relatively unsophisticated backers might be mocked by professional investors for some fanciful financial forecasts, many disruptive and challenger brands have emerged whose impact on established business sectors often far outweighs their market share or company valuations. Being new can mean a fresh approach unbound by a legacy of the past, even though a lack of a track record makes it hard to interest traditional investors at the beginning.

Here are examples in three business sectors where challenger brands used the power of crowds and are disrupting the status quo.

Banking
London-based Revolut, the UK’s fastest growing fintech company, ran a crowdfunding campaign as recently as 2016 to raise £1m and get started. Crowdfunding was also good marketing for them as it generated a core crowd of hundreds of investors who would become keen customers and brand ambassadors.

Crowdfunding is Changing Business

Revolut’s CEO and co-founder Nikolay Storonsky

The co-founders’ business idea came from their personal frustration with exchange rate markups, inexplicable foreign transaction fees and the overall hassle of managing a bank account abroad.

Today, Revolut provides over two million customers (two million customers acquired in two years!) with a debit card allowing the holders to spend money in 150 currencies with no fees. They estimate they have saved their customers over £560m in traditional banking fees, and in 2018 raised $250m through corporate investment which valued the business at $1.7bn (£1.2bn).

Brands like Revolut and fellow banking newcomer Monzo are definitely shaking up the traditional banks and changing customer expectations. The technology was there, but the existing high street banks still provided us all with slower, less sophisticated and more expensive services. With us all the way, are they?

Brewing
Behind Brewdog which is now a unicorn startup valued at over £1bn, there are many smaller craft brewers that continue to launch with modest funding and provide UK drinkers with a vast choice of beers and ales made with hands-on quality control and finer ingredients than high volume mass-market brands can access in sufficient volume.

Crowdfunding is Changing BusinessAn example is the fast growing Hop Stuff Brewery in south east London. City finance professional James Yeomans found he enjoyed home-brewing more than his time spent in the office and became determined to take it further. In 2013, without any commercial brewing experience – but he could talk “money” – he used equity crowdfunding through Crowdcube to raise £58,000 in exchange for 34% ownership of his startup craft beer brewery.

The business grew, and alongside attracting corporate investments it ran a second round of equity crowdfunding that closed in January 2017, and then a third smaller one in early 2018. Although corporate investors were by now queuing up for a slice of the business and crowdfunding was unnecessary for purely financial reasons, crowdfunding has provided Hop Stuff with a dedicated following of over a thousand supporters happy to perform unofficial Brand Ambassador roles. They influence people to sample the brewery’s products through positive word-of-mouth, and ask pubs and bars where they drink to stock them.

Hop Stuff is currently opening a number of its own “beer and pizza” bars under the Taproom brand, filling a global order book and signing overseas franchise brewing agreements. Compare this to the rest of the UK beer trade: the British Beer and Pub Association (BBPA) recently reported annual sales were 1.7% down, and in August 2018 the BBC reported UK pubs are closing at a rate of 18 a week. Hop Stuff Brewery is certainly bucking the trend, has just moved to larger brewing premises, and five years after launching with £58,000 raised through equity crowdfunding it is valued at over £25 million.

At an invite-only event for his crowdfunding investors in August 2018, founder James Yeomans announced that packaged Hop Stuff Brewery products will soon be on the shelves in London branches of Tesco, Oddbins and Majestic Wine.

Grocery items
Bamboo is a fast-growing sustainable product with four growth cycles a year. Tissues made from bamboo rather than paper are naturally stronger, softer and more hygienic. They can be made with a 65% smaller carbon footprint.

Crowdfunding is Changing BusinessWho created and introduced this breakthrough eco-friendly product to the UK? Was it corporate giants Kimberly-Clark or Procter & Gamble that own market-leading worldwide tissue brands? No, it was a pair of UK holidaymakers who returned home from China, researched possibilities and wrote a business plan to utilise abundant supplies of unwanted surplus bamboo they had seen being left to rot.

A modest reward crowdfunding project on the Crowdfunder UK platform with a target to generate £10,000 of orders gained the attention of a crowd of early adopters and, by chance, an angel investor. Within three years the founders of The Cheeky Panda tissue company ran an equity crowdfunding campaign with Seedrs that raised £500,000 and valued their business at £5m. The brand is a top seller on Amazon.

So even in the high-volume fmcg sector (fast moving consumer goods) dominated by massive brands that are supported with multi-million £ advertising budgets, crowdfunding – the crowdsourcing of both money and a community of supporters – enables entrepreneurs to introduce innovative products and disrupt existing markets.

Mayor of London Has £1m For Community Projects Using CrowdfundingIf you are considering crowdfunding as a means to launch a startup, or maybe to grow an existing business, I can provide you with independent crowdfunding advice and hands-on support. I have no ties to any particular crowdfunding platforms. Please email me, [email protected]. Let’s discuss your ideas and set about building them in to a plan of action.

How to have more by owning less

How to have more by owning less

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

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

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

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

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

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

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

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

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

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

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

Top 10 US Reward and Equity Crowdfunding Platforms

Top 10 US Reward and Equity Crowdfunding Platforms

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

Reward crowdfunding

  1. Kickstarter is the world’s largest reward crowdfunding platform. It was launched on April 28 2009 in New York as an alternative way to raise funding for performance arts projects and productions. Its model is to encourage low value donations from a large group of people rather than a lot of money from a few individuals.
    It quickly expanded to cover many other hobby, craft and product categories, and has raised almost $3.05bn through hosting 124,935 successful projects (the figures are updated daily by Kickstarter).
    It has an “all or nothing” policy meaning projects that fail to reach their target don’t receive any funding and the backers who made pledges don’t pay anything. Successful projects pay a 5% commission plus up to 3% transaction charges.
  1. Indiegogo actually launched first in January 2008 in San Francisco, again as an alternative way to raise funds for arts projects. Indiegogo also quickly grew to host projects in many different categories.
    A significant difference is that Indiegogo allows projects to receive the money that’s pledged even if they fail to reach target. When this happens their regular 5% commission rises to 9%, plus there are always transaction fees of approximately 3% on every project.

Top 10 US Crowdfunding Platforms (Reward and Equity)Since 1 January 2014, Indiegogo has hosted slightly more projects than Kickstarter: 231,900 vs 218,896 (as measured by crowdfundingcenter.com on May 17 2017). However,  Kickstarter has hosted significantly more that reached their target – 68,984 vs 26,272.

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

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

  1. PledgeMusic is third placed behind these two giants, as measured by website traffic. It launched in August 2009, aiming to do for the music industry what Indiegogo and Kickstarter were doing at the time for other arts genres. It is used by all types of people from hopeful wannabes to established performers with an existing fanbase.
    It operates like Kickstarter on an “all or nothing” basis for people raising money to complete a project like record an album, and on a “keep what you raise” basis when people use it as a sales channel for any finished content that can be downloaded. It charges a flat and all-inclusive 15% commission on “sales” and fundraising projects that hit or exceed target. This looks expensive though they claim a success rate of over 90% for the average 100 projects they carry per month.
    The platform operates globally by accepting payments through credit cards and Paypal.
  1. Seed&Spark is an industry specific crowdfunding platform for the tv and film industry and is based in Los Angeles. It launched in December 2012 and within an overall aim to build an independent film community it provides filmmakers with a reward-based crowdfunding facility. They claim a 75% success rate.
    Projects must reach a minimum 80% of target to keep the money pledged by backers. Then upon completion of a film, any project that also gathered over 500 backers is automatically eligible for distribution through Seed&Spark and their partners including all major cable and digital platforms such as iTunes, Comcast, Verizon, Netflix, and Hulu.
    Seed&Spark charges a 5% fee on successful projects, though offers project backers the opportunity to add this to their pledge. Many choose to do this and on average the crowdfunding projects themselves pay just 1.9% of funds raised to the platform.
  1. Barnraiser is a platform for artisan food producers, small farmers and exponents of sustainable, healthier living. It encourages its community of over 30,000 like-minded people to crowdsource advice and contacts from each other, and also provides a rewards crowdfunding facility they claim has a 65% success rate.
    It launched in 2014 and 187 projects have been successful. The largest amount raised was $93,190.
    Successful projects are charged a 5% fee based on the amount raised plus payment processing fees of 3-5%. If funding isn’t successful there are no fees.

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

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

Top 10 US Crowdfunding Platforms (Reward and Equity)

  1. Wefunder is the early market leader and it launched in 2012. The minimum investment size is $100, and Wefunder has created internal Investor Clubs in order that part-time investors in its network can access the wisdom and leadership of more experienced and professional investors and combine their investments with them on equal terms.
    Wefunder members have provided 55% of all online equity crowdfunding investments through Regulation Crowdfunding in the first 12 months of online equity investment trading being open to non-accredited investors.
  2. Investments made through StartEngine, which is based in LA and launched in June 2015, represent nearly 22% of the Regulation Crowdfunding total raised so far, according to SEC figures. StartEngine also raised $17m from 6,600 investors under Regulation A+ for its client Elio Motors.
  3. In 2016 Indiegogo ventured into equity crowdfunding in partnership with Microventures to launch a platform called First Democracy VC. To date it has accounted for 9% of the sector’s total $35.5m.
  4. NextSeed is based in Houston and its investor network has invested $2.8m in equities, 8% so far of the combined Regulation Crowdfunding. Investors can put in as little as $100 and NextSeed’s equity crowdfunding projects have ranged from as low as $25,000, typically for personal leisure/entertainment/service providers such as bars, restaurants and hairdressers.
    NextSeed also provides companies with debt facilities which contribute to their claim of having provided their clients with total funding of $3.8m.
  5. Three other platforms in this sector tie for fifth place as they have each raised in the region of $1m for clients from equity investors:
  • Republic (offers Reg CF only and investments can begin at just $10);
  • SeedInvest (which mainly focuses on non-Reg CF raises of over $1m);
  • FlashFunders (where Reg CF investments can start at $50 and they also handle Reg D raises over $1m and Reg A+ raises up to $50m).

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

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

Close encounters with the crowd economy at Southampton Boat Show

Southampton Marina hosts the largest outdoor annual boat show held in Europe, so perhaps it should have come as no surprise for me as an independent crowdfunding adviser to have encountered aspects of the crowd economy there among the hundreds of exhibitors and the opening day celebrity guests.

Michelle Keegan and Olympic sailorsThe event was officially opened by actress Michelle Keegan, formerly of Coronation Street and currently on our tv screens in the BBC drama Our Girl. On stage with her was the GB Sailing Team from the Rio Olympics boasting four gold medal winners.

Olympic success in a wide range of sports has been achieved with financial state support for our top athletes through National Lottery Funding for UK Sport. Every purchase of a lottery ticket contributes a small amount towards crowdfunding national sporting achievement at the highest level. The benefits to the nation are wide ranging:

  • with more role models to aspire to more people take up or maintain a sporting pastime – which the government encourages as part of the health battle against increasing obesity;
  • association with success puts a spring in the step, encouraging greater productivity and optimism;
  • it inspires more people in all walks of life to achieve excellence in whatever it is they do.

Close encounters with the crowd economy at Southampton Boat ShowIn a similar ‘organisational crowdfunding’ vein, an event on Day One of the show was the official handover of a new yacht to the Ellen MacArthur Cancer Trust. The carefully adapted yacht will be used to take children recovering from cancer treatment on confidence-building sailing adventures and has been funded by the People’s Postcode Lottery. Every ticket buyer has made a contribution.

Sailing has a reputation as something of a rich person’s hobby, sometimes described as similar to standing under a shower and tearing up money. FlexiSail has utilised the crowd sharing model to make boat ownership less onerous for owners and to provide access to a “pride of ownership” to a far wider audience. Boats are expensive to buy in the first place and then expensive to maintain and moor somewhere. Yet most of the time they are unused and simply take up space in a marina.

Close encounters with the crowd economy at Southampton Boat ShowFlexiSail offers a choice of membership options for people to choose from a range of 30 to 40 foot yachts, catamarans and motorboats and use them for a fixed number of days or weeks throughout the year, explained Business Development Manager Suze Hart. Reassuringly for the boat owners FlexiSail also arranges training to ensure everyone has appropriate skills and qualifications, and provides a full two day induction on board any chosen boat. They maintain an online calendar for members to book their time aboard, online logbooks for all the users of each boat to keep a record of problems and any work that needs to be carried out – and FlexiSail carries out the work. And the boat owners have turned their depreciating assets in to an income stream with safeguards in place.

Finally, a vital and integral part of sailing for many boat lovers is a gin and tonic on deck or in the cockpit at the end of a day on the water. In a corner of the Ribeye stand at the boat show Howard Davies, Co-founder and Director of his own brand new gin brand was providing very welcome samples. puedes comprar viagra en la farmacia

Close encounters with crowd economy at Southampton Boat ShowThe Salcombe Distilling Company, based in Salcombe in Devon, batch produces hand-crafted gin made with obligatory juniper and a secret blend of other botanicals. Premium products like this don’t come cheap and Salcombe Gin retails at £35 a bottle. Howard, who spent part of his previous career path as a sailing instructor, only gave up other employment this summer to concentrate on his new venture, in much the same way that many hand crafted spirits brands have come on the market in recent years.

A search using industry data provider Crowdsurfer showed 15 new distilleries/spirits brands used crowdfunding in the last 12 months in the UK. Crowdfunding is extremely flexible and can be used in a variety of ways to match very different requirements. Some used it on a rewards-for-donations basis, others traded equity to gain long-term investors.

At the lower end of financial targets, one person wanted £3,000 in donations to convert a unit in a suburban London market in to a tasting room and install a micro-distillery to make gin, and a couple of guys raised £30,000 through donations for rewards of branded merchandise to establish a malt whisky distillery in Devon.

Meanwhile, at the top end, the Cotswolds Distillery raised just over £1m from 124 investors at the end of January 2016 in exchange for equity – double its target of £500,000 – and GlenWyvis Distillery in Scotland had raised over £2.5m by July 2016 (against a target of £1.5m) using “community shares” through the crowdfunding platform Crowdfunder.

I hope that Howard’s gin proves to be popular and when he is ready to expand his Salcombe Distillery Company he’ll get in touch with me to explore the benefits and opportunities that crowdfunding could deliver for him.

Maybe you have a business you want to launch or expand? I am an independent crowdfunding adviser, please feel free to contact me for an initial conversation about what crowdfunding could do for you and how I can guide and help you through the process. Send an email to [email protected]. I have gained a wealth of experience in a 30+ year career in Marketing, and it is increasingly evident that implementing a good marketing plan helps attract investment.

 

“Best Funding Solutions For SMEs” – a conference in London in May 2016

Best Funding Solutions for SMEs

This event in east London’s Mile End Road explored a comprehensive range of funding options available to SMEs, including equity and debt crowdfunding. I attended in my capacity as an independent crowdfunding adviser. Here is my summary of key points from the day in four sections:

A)  An approximate, overall market background of funds secured by UK SMEs in 2015

B)  The range of funding opportunities available to SMEs

C)  Concerns for SMEs to be aware of when raising funds to grow

D)  Insights on successful equity crowdfunding

A) Overall market background

Best Funding Solutions for SMEsMatt Adey of the British Business Bank presented an overview of the funding landscape, the trends and latest figures available on financing SMEs in the UK.

Many small and medium size business owners, particularly in early days, prefer to bootstrap their way through rather than commit themselves to any obligations to third party finance providers. The extent of using someone else’s money may be restricted to existing bank account overdraft facilities or credit cards – which are already in place and immediately usable click resources.

61% of SME owners that do go further use just one source of external finance and in most cases that is their bank. Bank lending to SMEs is recovering, said Matt Adey, despite the continuing groundswell of media comment to the contrary. What clouds the picture is that high street banks are cutting overdraft facilities, according to Bank of England figures, whilst at the same time making more funding available through loans.

Awareness of other sources of finance is growing, as shown by research conducted for British Business Bank. Almost half of UK SME owners were aware of crowdfunding as a source of finance when the research was carried out in October 2015.

B) The range of funding opportunities available

    1. Asset-based lending
      This is effectively peer-to-peer pawnbroking, securing short-term loans against assets provided as security, as explained by Richard Luxmore of Funding Secure. No business plan or cashflow projections required, just an asset the lender will keep if you don’t make the repayments.
    2. Stock market flotation
      Companies in the EU can be as large as up to 250 employees and a turnover of €50m and still be an SME. Nick Parker, FD of newly floated Yu Energy took delegates through his recent personal experience. Yu Energy floated on AIM in March 2016 based on a turnover of £3.9m the previous year.
    3. Bank loan
      The biggest source of SME funding and on the rise, explained by Ian Warren, Senior Lending Manager at NatWest Bank. Total bank lending is increasing, though to some people it doesn’t seem so because overdrafts for SMEs are being cut.
    4. Peer-to-peer lending
      Best Funding Solutions for SMEsThis sector was represented by Jasper Ehrhardt, MD of Funding Knight, and Maria Samayoa, Production Manager at rebuildingsociety.com. SMEs generally have to show a minimum two year trading history.
    5. Equity crowdfunding
      Best Funding Solutions for SMEsThis sector was represented by two platforms: Frank Webster, Campaigns Director at Seedrs and James Sore (pictured), Chief Investment Office at SyndicateRoom. They both stressed that crowdfunding is no easier way of raising money than any other method. The sector has brought opportunities back to the general public to make direct investments in businesses. It is highly regulated, though investors still have to take responsibility for their decisions and conduct due diligence.
    6. European Union
      Chris Farmakis, EC Funding Manager at GLE Group, explained that through the Enterprise Europe Network they can provide EU funding for “highly innovative SMEs with a clear commercial ambition and a potential for high growth and internationalisation.
    7. Pension-led funding
      Best Funding Solutions for SMEsAnthony Carty of Clifton Asset Management pointed out that corporate pension funds are mainly invested in equities, in companies. So why not invest your own pension in your own company? They verify that it makes sense, to the extent that just 1-in-5 applications are authorised. This process can take three months. If you make it, you can get the government benefits from putting money in your pension, and then put it to work for your business. “It’s like having your cake and eating it,” said Anthony.
    8. Invoice discounting
      Explained by Helen Mackenzie of Platform Black. You can get a high proportion of an invoice’s value very quickly rather than wait for however long it’s going to take to get paid the normal way. Obviously a business has to be trading to have some invoices, so it doesn’t help startups. Platform Black particularly want to work with businesses over two years old with a minimum £500,000 turnover.

C) Concerns to be aware of when seeking funds to grow

  1. Your personal and business credit rating.
    Martin Mitchell and Jamie Allan of Experian highlighted the importance of making your credit score attractive to investors. This included checking for unknown County Court Judgements against an individual or their business. Simple things like paying bills on time improves a credit score. Click here for further information on access to monthly or annual reports.
  2. Intellectual property protection and ownership.
    Best Funding Solutions for SMEsSeeking investment involves telling your secrets, advised Clive Halperin of GSC Solicitors. Make sure what you tell people can’t be copied or stolen. There are trademarks, copyrights, patents and design rights. Make sure you understand the differences and use the most relevant one(s). Also, investors will not be keen if the business does not own its own IP. So don’t try to be clever and own it separately somewhere else.
  3. Shareholders agreements.
    This was also covered by Clive Halperin of GSC Solicitors. Shareholder agreements have to look to the future, not just reflect the present. Give yourself room to manoeuvre if a business partner stops pulling their weight. Allow for death, incapacity and for simply wanting to do something else instead. Consider all circumstances of share transfers, issuing new shares, restrictive covenants, deadlock resolution procedures, and more.
    Best Funding Solutions for SMEsAnd as Bill Morrow, CEO of Angels Den later added: “If you sign anything [i.e. a shareholders’ agreement] and you don’t know what the likes of ‘tag and drag clauses’ are then you will not survive.” Don’t totally rely on advisers, make sure you actually understand it all.
  4. Secure EIS and SEIS tax advantages for investors.
    Founder and CEO of P2P lender Startup Funding Club, Stephen Page, explained the value of these tax break schemes for investors. Business seeking investment should be ready in advance, particularly if the end of the tax year is looming.

D) Insights on successful equity crowdfunding

  1. It requires and dedication time to identify, locate and get in front of enough potential investors to find the one(s) who will back your business.
    Best Funding Solutions for SMEs
    Frank Webster, Campaigns Director at Seedrs (pictured) said: “To raise money, get out there and talk about it [your business]. To potential investors there is nothing special about your business. They’ve heard it all before. So share it.” Or as Paul Grant of The Funding Game put it: “You’ve got to kiss a lot of frogs to find a prince.” He reckoned that on average it takes 50 approaches to find an investor.
  2. Share your idea, don’t hold back, and don’t expect people to sign an NDA before you tell them about your business idea.
    To reinforce what Frank Webster of Seedrs said, Stephen Page, founder and CEO of Startup Funding Club said: “I’m not going to sign over a thousand NDAs a year. I know what we talk about is confidential. Investors aren’t going to steal ideas, it’s not what they do.”
  3. When you do find a potential investor who shows interest, don’t rush things.
    Best Funding Solutions for SMEsDon’t immediately give a potential backer too much information. No one is going to stop what he or she is doing to read your 25-page business plan e-mail attachment on the strength of a brief conversation you had the previous day. “Investors have to be wooed,” claimed Roderick Beer of the UK Business Angels Association. “Don’t ask to marry them on the first date,” advised Paul Grant (in picture). Personally, I’d say don’t make yourself sound desperate as it can put people off.
  4. You need a team
    Investors will be wary of a one-man band, no matter how much of a genius you think you are. All the people from Seedrs, SyndicateRoom, Angels Den, Funding Knight, Invesdor and Startup Funding Club supported this point.
  5. Don’t rely on your Business Plan
    Best Funding Solutions for SMEs
    Investors will want to know you have prepared one, but as to how accurate a plan for a startup can ever be is acknowledged as a mystery. What’s more important, said Stephen Page of Startup Funding Club (pictured), is knowing what your cash flow is going to be like, and how long it will be before you need to raise more funds. And as the person who has had the great idea for your business, if you can’t write your own business plan you will be dead in the water, said Bill Morrow of Angels Den.
  6. A mentor can be more important than money.
    Money can be raised later, because maybe what’s needed first is a mentor with experience and contacts in the business sector you want to operate in. Jonathan Pfahl, Founder of Rockstar Hub International said they can effect introductions, and Bill Morrow of Angels Den said they even train their investors on to how to be better mentors. That’s why, he claimed, 94% of the companies that have raised funds through Angels Den remain trading.

If you are considering a crowdfunding project, whether equity or donations-for-rewards, I am an independent crowdfunding adviser with a marketing rather than a financial background. Please contact me about anything to do with identifying and building your own crowd of backers, and underpinning your crowdfunding project with an effective marketing campaign to get noticed and deliver results.

Clive Reffell, Comanche Communications and Marketing

Four live crowdfunding pitches received a guarded response

By independent crowdfunding adviser Clive Reffell.

Live crowdfunding events give entrepreneurs valuable opportunities to deliver their pitches and receive insightful feedback from an interested audience.

DSC_1361An enterprising accountant, Irfan Khalil, has formed a ‘Finance for Startups’ group of over 4,000 people who are interested in equity crowdfunding. Most fall in to one of these four categories:

  • they want to trade some equity for a cash investment in their business,
  • they are looking for investment opportunities,
  • they are at an early stage of considering using equity crowdfunding,
  • or like me they provide professional services that are useful to equity crowdfunders.

Irfan organises monthly meetings at a variety of London venues. There are slots for four or five entrepreneurs to pitch their business investment opportunity in just five minutes to four or five panellists. The panellists have five minutes to ask questions, and then a final five minutes to provide feedback on what they like, what they consider ought to be better thought through, and so on.

At the end of these ‘formal’ proceedings there is then about 45 minutes of networking for everyone there to exchange ideas, experiences and contacts. Each event has a very collaborative feel to it.

February’s event was in Camden. Four entrepreneurs pitched their opportunity to five panellists in front of over a hundred people.

The panel consisted of (r to l):

DSC_1378

  1. Peter Richards, a partner in Venture Pilot, which provides technology organisations with a scalable structure for growth;
  2. Amarjeet Hans, Director of Crystal Clear Business Consultants Ltd;
  3. Raimonda Junkanaite, an entrepreneur and early-stage business adviser who is setting up CrowdVelocity, a crowdfunding-for-donations platform;
  4. John Elsdon, Chairman of the management consultancy Allied Powers;
  5. Akeem Famuyiwa, an intellectual property specialist and an entrepreneur with a background in pharmaceutical science.

The four entrepreneurs and the opportunities they pitched to the panel and the audience were as follows.

DSC_1369.James Grant, founder of Weavee.co.uk. James is creating an app that connects job vacancies, recruiters and candidates seeking work. This is a competitive area, I have seen several crowdfunding pitches in the last few months based on apps for the job placement market. James was seeking £150,000 and believed this would be the only round of investment required before he started making a profit in the back half of Year One – subject to reaching a minimal critical mass of 10,000 registered job seekers and 100 recruitment consultants. Five job agencies are currently trialling the technology. .James had pitched three months before and the panellists agreed his pitch was getting tighter and he was coming across as more confident.

DSC_1371Next up was Julian Tremaud, founder and CEO of Fanteamz.co. “86% of viewers skip TV ads” he declared, as a way to start explaining that he will provide organisations with an opportunity to hire teams of brand ambassadors to deliver positive word-of-mouth campaigns. He has Spanish partners and they already have successful case histories from South America, particularly in the music concert and festival sector. Julian is seeking £250,000 for 20% equity, and forecasts £21m profit by the end of Year Three.

The panel advised Julian to be better able to explain how the company valuation figure was reached. Another suggestion was try a round of donations crowdfunding before an equity deal.

DSC_1373Third pitch was from James Parker from Instaload. One third of all US truck mileage is with empty vehicles. Freight bookings go through expensive brokers, often at short notice that leaves the drivers stuck with no loads to pick up at their destination to then take on to somewhere else. The growers and manufacturers with goods to shift sometimes never meet or speak to the truckers who deliver their products. To address these factors, Instaload are developing an app that will provide a direct interface between the people with products that need transporting with the smaller truck companies that carry about 20% of the USA’s road freight. This 20% market share was valued at an estimated $114bn in 2014. James was seeking £50,000 to complete the app development in exchange for 10% equity.

The panel suggested it might be too difficult to raise the finance in the UK if it was going to be invested in the US. Investors would not have market knowledge to make a confident decision and generous UK tax breaks would not be available to them. There might also be heavy industry regulation that protected the brokers’ position. Later in the informal discussion it was suggested that potential investors might not believe it credible that they could get a 10% stake in a company targeting a $114bn market for just £50,000.

DSC_1377The final pitch of the evening was given by Borja Goyarrola, director of Gobe! Borja hopes Gobe! will become a travel/lifestyle app populated with content provided by users about their own personal favourite locations and places to go. The sharing of such local knowledge and tips would allow travellers and visitors to experience more of the living contemporary culture of a city rather than look at iconic monuments and exhibits that celebrate past achievements. Borja was a last minute addition to the roster and it was understandable he did not have a presentation available alongside his demo video.

Borja wanted £100,000 to finish developing the app and to pay for some digital and social media marketing. The panel suggested he should target some low-scale income from advertising before he pins his hopes too much on a big spending global advertiser such as Unilever stepping in to support the fledgling Gobe! I know from experience that fmcg giants and their advertising advisers can be rather conservative when faced with new marketing channels and opportunities.

Whilst equity crowdfunding is clearly about raising finance, research shows that more crowdfunding project creators have difficulties with marketing issues than anything else.

What crowdfund creators find difficultI have over 30 years’ experience in various results-focussed marketing roles and have concentrated on crowdfunding since 2014. I’m happy to meet for initial consultations free of charge. How things develop after that depends on the scale and scope of your aims and the extent of your marketing activity so far.

Clive Reffell, founder of Comanche Communications & Marketing and an independent crowdfunding adviser: E [email protected] and Mob 07788 784373.

 

Definite tech firm skew to live crowdfunding at StartUps2016

The ‘Show Me The Money Zone’ at the recent StartUps 2016 day for aspiring entrepreneurs saw five tech-based crowdfunding projects showcased to a panel of judges in front of a maximum capacity audience in KPMG’s Canary Wharf building.
DSC_1271_01
The event was organised by IntelligentCrowd.TV and three of the five startup companies will be included in their weekly Seed & EIS Hour show going out at 19.00 on January 28.

The top class judging panel included (l to r):
DSC_1288_01

  • Modwenna Rees-Mogg, founder and CEO of Angel News – “The intelligent and relevant news service for investors and entrepreneurs”
  • Grant Calton, partner at Ironbridge Capital Partners. Grant has spent much of his career in the music and media industries as an entrepreneur and investor and is also an active investor in the media, tech and property sectors.
  • Jenny Tooth OBE, CEO of the UK Business Angels Association, the professional trade body for angel and early stage investing.
  • Damian Wasey, Head of Sector Partnerships, KPMG Small Business Accounting
  • Julia Groves, Chair of UK CrowdFunding Association and a director of Trillion Fund – a crowdfunding platform focussed on loans to renewable energy projects.

The five pitching companies seeking funding later this year each gave very professional presentations that summarised their business idea, outlined their development plans and aims, and explained what they intended doing with the funds they wanted to raise. They had to do this within a strict time limit and then field questions from the panel. The panellists assessed each pitch to decide on a final ‘winner’ on the day.

DSC_1305_01The winner was WorkMatch, a smartphone app creating a marketplace to connect vacancies in the hospitality industry with a somewhat itinerant group of informal workers. It allows employers to run background checks, hire, pay and review staff from their smart devices. Workers can access, screen and apply for hundreds of vacancies. CEO Matthew de la Hey and COO Alexander Hanson-Smith presented.

DSC_1329_01Close second was BackTracker. CEO Henry Latham and co-founder Geordie Palmer pitched their plan for an online social guide for backpackers. Backpackers have a different mindset and set of criteria to holidaymakers and this app enables them to find other people’s tips and to pass on their own.

In the order that they presented, the other three startups were:
DSC_1297_01FindEx, a currency exchange marketplace on a powerful mobile app that enables users to locate the most competitive currency exchange rates and provides FX retailers with a cloud-based platform on which they can encourage business. It was pitched by CEO Ricky Lee.

DSC_1317_01The Virtual Insight team of CTD Thomas Clayton and CEO Dr Cyril Godart presented their virtual reality means of learning to play the piano from a private tutor to a point of experiencing performing any one of hundreds of compositions to a ‘live audience’. The audience had been filmed listening to a maestro performing each piece of music to ensure genuine reactions and appreciation. In time this could be expanded to include other instruments.

DSC_1356_01Final pitch was Owlstand, an online exhibition and gallery platform for the display, sale and purchase of art. Art is currently displayed online the same way as products on supermarket shelves, said CEO Stephen Yang. When questioned, he admitted it was tricky to find sellers before there were any buyers and buyers without any sellers first committed to the site. His solution had the judges and the audience in fits of laughter: “Well, you just gotta fake it ‘til you make it.”

Panel laughing
The judging panel appreciated Stephen Yang’s candour: “you gotta fake it ’til you make it.”

The IntelligentCrowd.TV website show on January 28 will feature WorkMatch, Virtual Insight and Owlstand.

If you want independent crowdfunding advice to develop your own business idea from a dream to reality then contact me, Clive Reffell, at [email protected] or on 07788 784373. You can follow me on Twitter @Cliveref.