Almost $1.5 billion was raised by Crowd Funding Platforms (CFP) world-wide in 2011. Funds raised grew at 63% CAGR over the last 3 years. As of April 2012, 452 CFPs were operating globally and the projected figure for 2012 was $2.8 Billion![1]
Based on these numbers, crowd funding must be an option for you. It is yet another tool at your disposal. I have raised millions of dollars for my startup ventures and they were from; Friends and Family, Government Agencies, Angel Investors and Venture Capital firms. However, in the last few years we have seen a new and disruptive tool emerging in this space and that is Crowd Funding. I wish I had access to this!
There is no denying that crowd funding is a fundamental change in the way entrepreneurs may choose to fund their businesses. Just as the PCs brought computers to the masses, so too does crowd funding put innovation in the hands of the masses (the crowd).
“My innovation is not a world-changer, and yet fifty thousand people gave me millions of ‘yeses’ when I couldn’t get a venture capital firm to give me a single ‘no’. Innovation serves and benefits the masses, and deserves to be judged by them. Crowd funding may not be totally there yet, but I for one am excited to see what its future holds” – Eric Migicovsky, Founder & CEO of Pebble – Pebble has raised over $8.5 million dollars on one of the most successful crowd funding projects to date.
Crowd funding is a term used for fund raising when an individual or business reaches out to the crowd to obtain money. There are many types of crowd funding such as:
- Donation funding – straight donation with no rewards. e.g. www.justgiving.com
- Pledge or project funding – funding for reward, where the backer gets something in return for their commitment of funds, ranging from a thank you listing to free or discounted product. e.g. www.kickstarter.com, www.indiegogo.com
- Equity funding – where the backer gets a share of a company in some way. e.g.www.crowdcube.com
- Debt funding – better known as peer to peer and peer to business lending, where a loan is provided by multiple small lenders. e.g. www.linkedfinance.com,www.fundingcircle.com, www.thincats.com
- Specialist debt funding – asset based lending e.g. www.marketinvoice.com
- Social enterprise funding – funding for a social cause e.g. www.kiva.org
SmallBusiness.co.uk looks at five examples of businesses turning to alternative methods of finance for investment in their venture .[2]
- Funkey Junk
– is a London-based supplier of professional recording equipment. In 2012 the company looked to break into China and Russia, which a loan of £80,000 from Funding Circle has made possible. Managing director Mark Thompson says, ‘It was quite nice to say to the bank, ‘No thank you, we don’t need you.” - Kamm & Sons
Alex Kammerling founded spirit manufacturer Kamm & Sons in 2011 and raised £180,000 through Crowdcube. He says, We didn’t realise quite how good a ‘shop window’ Crowdcube was and it has brought us a lot of press and external investor interest as well as funds. - Red Advertising
Job advertising network Red Advertising secured a loan of £150,000 over five years through peer-to-peer lender ThinCats.com. Managing director Richard Clarke says, ‘With Thincats, you can look for larger amounts of money. Funding Circle will only go to £100,000 and draws on an Experian business credit score. - Artesano
Knitting wool wholesaler Artesano raised £65,000 on Funding Circle. Managing director Tom Coomber says, ‘We’re with a high street bank and we do have a loan and overdraft in place with them. When they took us on they told us that we’re a good business to be lending to, but every year our business is growing and we need more cash for stock, so we had to look elsewhere.’ - Magnus Walker & Partners
Johnny Walker, co-founder of specialist recruiter Magnus Walker & Partners, raised money on invoice auction platform MarketInvoice to remedy the problem of late-paying customers. He says, ‘The cost of credit is quite low. Also, some invoice financiers demand the entire debtor book to be financed but MarketInvoice is more flexible.’
To learn more about crowd funding, sign up to the seminar on “Crowd Funding – How can I avail of it?” in Dublin on Tue Feb 25th. The first 25 subscribers to this blog for regular updates can collect a free copy of the book signed by the author; Crowd Funding – How to raise money and make money in the crowd by the keynote speaker, Modwenna Rees-Mogg at the event.
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