“We’re crowdfunding. Invest in us!”
How many times have you heard that in the last 12 months?
Equity crowdfunding in the UK doubled in size last year to £50m and I suspect it is only accelerating.
It’s not just funding for equity either – minibonds and crowdfunding for debt are the latest thing. Long gone are the days where the bank was your only option to help get your business off the ground. In fact the banks are becoming more marginalised with every passing day.
Even the US market, previously too tightly regulated to allow crowdfunding for shares, is about to jump on the bandwagon. There, the Jumpstart Our Business Startups (JOBS) Act will relax regulations and open up the market. It comes into effect imminently, so expect a tidal wave of change on the other side of the Atlantic.
In 2015, equity crowdfunding is worth taking seriously.
But how good an option is it for a startup wanting to raise money? Speaking from personal experience as the CEO at Chirp, we’re coming to the end of a funding campaign on Crowdcube, so we are in the right place to reveal some up-to-the-minute insight.
A little bit of context
Chirp is a University College London spin-out that has developed an audio technology platform.
The platform means data can be exchanged between potentially billions of devices with a speaker or a microphone. You can think of Chirp’s sonic data protocol as an “audible barcode”. Launched initially as an application for sharing web links, pictures and texts, the Chirp app has been a top ranking consumer app around the world.
Why did we decide on crowdfunding?
We did a lot of research into our funding options before deciding on the crowd. In simple terms though, it came down to four things:
1. Does our business have enough crowd appeal?
The first signs of Chirp’s crowd appeal happened last year when schools started discovering that the Chirp app could improve the use of technology in the classroom. Teachers began to use our app to send class notes to pupils armed with iPads and iPhones. The word spread, a few teachers started blogging about our app and soon enough we were winning educational-tech awards we never even entered in!
Since then, we’ve moved the business on to provide a toolkit for business customers and developers to embed our technology into their applications. Chirp is now a B2B business. We knew that it is easier to get the crowd inspired with a direct-to-consumer business – the reason crowd platforms are disproportionately full of startup drinks brands, consumer apps and artisan coffee shops. But we also knew that Chirp still has a consumer-friendly brand and fans around the world so we were confident the crowd appeal would still be there.
2. It’s not about the money.
Actually, of course it is about the money. But not only the money.
Fundraising from the crowd gets your business in front of tens of thousands of people. We had lots of new products in the pipeline, due for release whilst we were fundraising.
If we had been fundraising with angels or VCs, we would have been locked away in meeting rooms full of lawyers for weeks.
With crowdfunding, all of our efforts to market our business to the crowd could help achieve our commercial and marketing goals as well as our financial goals.
3. Alternatives
We had already completed an angel funding round in 2014. This time we wanted to raise more money and we felt that we had outgrown the same angel funding approach.
We looked at VC investment but the typical response was that anyone who didn’t have a million of recurring revenue (dollars or pounds, it didn’t really seem to matter) was too early.
A lot has been talked about the barren zone between angel and VC funding, particularly in Europe where VCs take smaller bets than their American cousins. That’s the zone we found ourselves in but that’s exactly the sweet spot for crowdfunding.
4. The clincher
We had virtually decided on crowdfunding anyway when we were introduced to the London Co-Investment Fund (LCIF). This is a new initiative from the Mayor of London Boris Johnson’s office, offering to match equity funding for innovative London-based digital businesses. One of its funding partners is Crowdcube, the UK’s largest equity crowd-funding platform.
This partnership offered us the potential to start a crowdfunding campaign with £100,000 already in the pot – enough of a head-start to give the crowd the confidence to follow their lead.
That was the dream, but continue reading on the next page for what the reality and determine whether crowdfunding could be the right choice for your business.
Image: Shutterstock
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