Finding the money

Stuart Hartley

Finding the money

• Four ways of getting money:

− Equity – Dragons Den

− Debt – bank overdrafts / loans / credit cards

− Public sector grants

− Crowdfunding

Before we start though

• How much money do you need and for what?

− Calculating start up costs

Start-up costs     Business rent £

Business rates £

Water rates £

Light/heat/power £

New equipment £

Business insurance £

Travel and vehicle costs £

Telephone and postage £

Printing and stationery £ 

Advertising and promotions £ 

Accountancy and professional fees £ 

Development and training £ 

Stock £ 

   

What are your costs

Page 4

Start-up costs     Business rent £

Business rates £

Water rates £

Light/heat/power £

New equipment £

Business insurance £

Travel and vehicle costs £

Telephone and postage £

Printing and stationery £ 

Advertising and promotions £ 

Accountancy and professional fees £ 

Development and training £ 

Stock £ 

   

Personal funds from family or fr iends.No guarantee that they will get the money back

Business Angels investment for a share of the profits / companyMay want day to day involvement may not

Typically for more established businessesLarger levels of investment

A relatively new way of equity funding your business. Projects usually in the region of £50,000 to £1m

Funding

• Be aware:

− Funding applications will usually not pay for internal costs

− E.g. staff salaries,

− A lot of funds require a degree of “match funding”

− Some will require the money to be spent and then reimbursed.

− Some funds are sector specific so your business may not be eligible

The majority of funding applications require a

good quality business plan

Common mistakes when applying for funding

• No wow factor

− The proposition must have an exceptional differentiating factor

− Why would I invest in your proposal and not another one?

− Why would I buy your product / service and not your rivals?

What is your sustainable competitive advantage?

• Expecting a 24 hour turnaround

− Plan for a longer than expected turnaround – it could take months

• Touting an untested idea

− For the best chance of success produce a working prototype or have demonstrable market need data

• Avoid assumptions

− Continue the market research and ensure your financials, in particular, are as accurate as they can be

• Lack of a clear development path

− What is the end goal and what will you need to achieve it?

Crowdfunding

What’s your definit ion?

Definit ion

• “the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet”

Crowdfunding: How Does It Work?

• Online platforms that allow people to invest from as little as £10

• Pitchers post a video, summary, business plan, financials and legal documents

• No success fees until the pitch is funded

• Pitches tend to be 30, 60 or 90 days

• Round can be closed through the platform and only takes typically 2 weeks

Some Early Examples

• Mozart 3 Lenten Concerts

• In 1784, 174 subscribers from Austrian aristocracy

• Statue of Liberty (1885)

• Statue donated by France but cost $250,000 to erect on granite plinth

• Fund raising fell short, State said “no”

• The New York World launched campaign -$102,000 from 160,000 US donors, 80% were contributions of $1 or less!

Let’s name the platforms

A “Crowded” Market?

Can you identify the types?

Crowdfunding: Models

• Donations:

Contributions go towards a benevolent cause and the donor receives nothing in return

• Rewards:

Investors receive a tangible item or service in return for their funds. (Invest in film…and get tickets to the premier)

• Debt:

Investors are repaid for their investment over a period of time at a specified rate of interest

• Equity:

Investors receive a stake/ shares in the firm

Crowdfunding: Donations

• Used for good causes – community projects, personal fund raising, “worthy causes”

• Funding not repaid

• Many of you will have used this type of crowdfunding

Crowdfunding: Donations

• indiegogo.com – strong arts focus

• Buzzbnk – support for social enterprises

• SolarSchools: solar panels for schools

Crowdfunding: Rewards

• Funding not repaid but a “gift” is given as a reward

• Kickstarter - Creatives focus: $2.8Bn of pledges, 12m funders in 120,000 projects!

• Gambitious - Games focus: Reward & Equity

• Peoplefundit & Bloom VC -arts focus: Rewards

• Wefund - Creativity: Rewards

Bryt Socks Results

• 768 backers

• Range from £1 (gift) to £1,000 (50 pairs of socks plus 2 designs into production)

• £27,060 of an £18,000 target in 33 days

Crowdfunding: Debt

• “peer to peer” lending

• Lenders receive return on their investment

• Used to raise debt funding that “traditional” means would find hard to support

• Also micro-finance to support poor in developing economies (interest free)

Crowdfunding: Debt

• Typically 9-12% per annum• Usually pre-screened through brokers, introducers, agents• Often targeted at existing businesses, with track record, who can

finance debt repayments• Average funds £10-50k• 60-70% success rate, 2 weeks

Crowdfunding: Equity

• Angels Den

• Crowdcube

• Seedrs

• Syndicate Room

• Different legal structure; Angels Den provide shareholders agreement, Seedrs do nominee structure, Crowdcube provide no legal document (just articles of association)

• 90-95% of deals enjoy SEIS/ EIS relief

Case Study

Success?

• Funding target of £110k in 2 days

• Stretch target of £150k in 2 weeks

• 119 investors

• Ranked #1 or #2 on Seedrs for whole pitch period

• Well planned campaign

• Now looking to raise £1m for massive expansion

FFS - Key Learning Points

• Understand how rating on the platform works

• Seedrs algorithm- number of big investors on board- number of smaller investors on board- speed of investor recruitment

What is Crowdfunding Good For?

• Funding specific projects

• Raising start up funding

• Engaging your audience and growing it

• Reducing transaction costs

• Businesses with large “reach”

What Is Crowdfunding Not?

• A panacea

• The only answer

• Easy!

The Process

Develop Project

• Define clearly what you want to fund

• Have a project plan – objectives, timescales, funding

• Funding Plan? What element is Crowdfunding?

Cost of completing the project+ Cost of fulfilling rewards

+ Legal+ PR & marketing

+ Platform & processing fees: ~10%+ 30% cushion

= Minimum Funding Goal

Choose Platform

• Rewards or donations?

• Look and feel

• Ease of use

• Fees

• Timescales

• Audience and motivation

Pre-start New start Early growth High growth Maturi ty

Which platform would be best for you?

Pitch

• Create a compelling page – pictures and video

• Copy the best of others!

• Use your existing networks

• Publicise like mad!

• Use own social media networks – Facebook, Twitter etc.

• Timeframe

Donors Pledge

• All or nothing?

• Automated or personal thank you’s?

• Engagement – make pitch viral (1-42…….)

Project Proceeds

• Keep crowd informed

• Maintain regular dialogue

• Offer benefits (tangible or intangible)

Typical Costs

• Pitch fee: cost of video/story?

• Success fee: 3% to 5% +

• Mostly all or nothing!

Top Tips

Don’t rely solely on Crowdfunding

Choose most appropriate platform

Have a clearly defined project AND plan

Have a clearly defined project AND plan

Set up core team to run campaign

Seed your campaign with exist ing supporters

Find third parties to offer prizes/rewards

Offer donors chance to engage as well as donate

Top Tips

• Set a realistic minimum target, better to over achieve! “Stretch” at top

• Good to have 30-40% lined up long before launch (pitches that reach 30% of their target in a few weeks have 80% chance to get funded) Be clear on what you are trying to achieve and what the money is for

• Ideal to have own big crowd

Advantages

• Much less due diligence (investor and investee)

• Typically higher valuations (the crowd aren’t as sophisticated as angels)

• Grow your own brand ambassadors, salesforce, advocates

• Can be very quick

But…..

• Can’t normally get a Non-Executive Director/Mentor/Advisor

Sources of Further Information

• Great Nesta white paper: “Working the Crowd”

• Great platform information source: www.crowdingin.com

• UK CF association: www.ukcfa.org.uk

Key tips when applying for funding

1. Clarity and consistency.

2. Be concise.

3. Be realistic about what you will achieve.

4. Understand what the funders objectives are:

1. Public sector often new jobs or business growth

2. Private sector – assurance – ability to pay back the money or making money from an equity investment

5. Follow the guidance notes, if supplied, and be aware of the rules specifically with eligible spend