Introduction to crowdfunding for startups and sm es 9.11.17
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Clive Reffell Crowdfunding Presentation 9-11-17
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Introduction to crowdfunding for startups and sm es 9.11.17
- 1. Introduction to Crowdfunding for Startups and SMEs 9 November 2017
- 2. What is crowdfunding? • A new online and alternative way of raising money to launch or expand a business • Through selling products, selling equity, or taking a loan • Get a little from a lot of people rather than everything from one source • Largely based on effective social media and digital marketing to spread the news • £47m invested in 82 equity crowdfunding projects Q1 2017
- 3. The Cheeky Panda: a £5m business in under two years Copy this link: bit.ly/The-Cheeky-Panda-case-study
- 4. Crowdfunding provided a full template to build the business
- 5. Julie Chen and Chris Forbes
- 6. More than just money • Target of £10,000 orders through donations-for-rewards crowdfunding • Start date, end date and all-or-nothing funding process focused efforts • Proved public demand existed • Recovered some of their initial £5k outlay • Provided samples for meeting with stockists • Effective PR generated media coverage – Good crowdfunding = good marketing • Crowdfunder link to Amazon Launchpad for innovative start-ups
- 8. Niki P Designs 103 backers pledged £17,773 against a £17,500 target
- 10. Angel investors
- 11. An angel investor liked The Cheeky Panda • Initial investment in the business meant the founders could ditch their day jobs • Grew distribution through online and offline stockists • Tackled the corporate supply chain to sell to hotels and airports • Maintained media coverage
- 12. Equity crowdfunding • Target of £350,000 • Crowdfunding platforms make it easy to invest • Raised £500,000 for 10% equity • They had a business valued at £5m!
- 13. Equity platforms in a crowded market Market leader, claims 48% market share No. 2, recently raised £10m From early funding to public listing Minimum investment is £25,000 Industrial and B2B businesses. Minimum £1,000 investment. VC interest. Angels, equity and debt all under one roof
- 14. Generous investor benefits • Exist to encourage investments in private companies • Companies using crowdfunding register under EIS, Enterprise Investment Scheme – Minimum 3 year lock-in for investors – 30% tax relief on up to £1m invested p.a. – That can be carried back to the previous tax year – Capital gains are tax free – Further tax benefits if the investment tanks – Exempt from inheritance tax after 2 years • £16bn invested in 24 years
- 15. Seed Enterprise Investment Scheme • Each company can raise £150,000 • 50% tax relief* for investors – who can be directors - up to £100,000 per person • Can be carried back to the previous tax year • Zero CGT after 3 years • Maximum loss of 27.5% of sum invested if the business fails * assumes 45% rate tax payer
- 16. James and Emma Yeomans
- 17. • 2013: sold 34% equity for £58,000 to establish a craft brewery based in the Royal Arsenal 3 year sales growth to 4 x original capacity January 2017: traded 12% equity for £750,000, a company valuation of £6.25m – Original investors sit on a 3,600% paper profit • Target is 8 x growth in the next 3 years
- 18. More than just money • Crowdfunding provides a template to launch and build a business – Business plan and cash flow projections – Research the marketplace – Marketing – Selling, to early backers and customers – Deadlines – De-risk initial production • Isn’t it what all startups and SMEs should be doing anyway?
- 19. It isn’t easy • Chris and Julie, The Cheeky Panda – 4 months of 20 hours per week – £5k budget – Downloaded Harvard Business Plan – 8 weeks thinking about the video • James and Emma, Hop Stuff Brewery – Working to 3am on financial projections
- 20. Debt crowdfunding for existing businesses • Investors seeking better returns than from traditional options, though risk averse • SMEs get faster decisions and better terms than from traditional options, retain equity • Borrowers usually need minimum two years’ trading history and/or assets as security • P2P lending platforms include
Editor's Notes
- Equity funding is what goes on in Dragon’s Den. The trading of a shareholding in a business for some investment in it to fund planned growth. But rather than a personal pitch to five potential investors who may or may not come up with all the money you want to invest in your business, equity crowdfunding uses the internet to put your investment opportunity in front of thousands of potential backers who can choose to make a contribution to the amount you want to raise. Equity crowdfunding platforms have websites to host and showcase your business and the investment opportunity you are offering, they also have networks of several thousand investors looking for a better return on disposable cash than is available elsewhere. Space on their websites is often in high demand, and they have teams of client advisers to check that your proposition is serious, realistic, credible, and worth putting in front of their investor network. They have their own brand values to protect and don’t want to waste investors’ time with any projects not properly thought through, not well presented, or doomed to failure from the start. Some platforms turn away up to 85% of applicants. So businesses that want to get investement strive to meet the threshold quality standards the platforms set themselves, and also compete against each other to be the best investment opportunities that can be put forward to networks of investors. An important part of this is to show that you have already been able to secure some level of support towards your financial target. So you will, after all, have to go through your own equivalent of Dragon’s Den with some people you know or people you are able to reach out to and connect with. A crucial figure that has become a crowdfunding rule of thumb is 30% of the total target. When your campaign goes live online you will need about 30% of your target to fly in within the first few days. This momentum will encourage people you don’t know well enough to have personally contacted. The equity crowdfunding platforms will also be reassured to see a business has its own networks of contact to communicate with about its investment opportunity. This could be existing customers. Customers that become investors and in effect your business partners the have a vested interest to support the business through word of mouth recommendation, encouraging their own networks of contacts to at least buy your products or services if not also actually invest in you as well. So when using online equity crowdfunding you will still have to do some face-to-face personal selling of your businesses prospects and the investment opportunity, and you will still need to have built up your social media and email contacts, including media people to try and get some media coverage through press releases. It’s hard work. I have a couple of examples to run through today. In one of them the project leader said he was sometimes up to 3 am working on financial projections. In the other the couple who launched a successful business spent 20 hours a week on it for four months before they launched their first crowdfunding which was a project to generate £10,000 of pre-orders. And in both cases this was on top of fulltime jobs. Please don’t ever think that equity crowdfunding is an easy way to raise money. It involves everything you wold have to do to use traditional sources of finance, plus more to build and communicate with a crowd of potential investors.