Historically, banks have always been the organisations to turn to for business funding; to start a business or to inject capital for expansion. In recent years, angel investors, high net worth individuals and venture capitalists have grown in prominence as a route for businesses to source funding.
VC funding came to the fore during the ‘dot com’ boom at the end of the 90s and subsequently TV programmes such as the BBC’s Dragons’ Den have popularized the model.
Founders, friends and family have always been a source of early capital or of course you can choose not to raise funds and grow your business organically instead.
But times have changed. The credit crunch, short-termism, exorbitant fees and limited pools of capital mean that there are some very good reasons to avoid several of the usual options.
The alternative is crowdfunding, the collective effort of individuals who network and pool their money, and it is becoming increasingly popular, particularly in the last year or so. We took the crowdfunding model and did two extra things with it that turned it on its head.
First, we actively sought out ‘fanvestors’. These are customers with a passion for the company, know the product inside out and are keen to own a part of the business that serves them. We approached them directly in several ways, including direct marketing (email) as well as PR and of course their social media channels.
More than 700 of our customers are now shareholders of the business and this has created a community of loyal advocates. Our new shareholders also have their customer hats on and have bought into our long-term vision rather than a quick return on investment.
Second, we skipped the crowdfunding platforms that are out there and built our own. Using a crowdfunding platform is expensive, with fees in excess of 5% of the funds raised, but by doing it ourselves we kept them under 1%. We developed our own software to accept applications, take payments and issue share certificates directly to customers.
Crowdfunding worked well for us because a few key elements came together perfectly. We already have more than 5,000 customers and that gave us a lot of people to reach out to in the first place. Furthermore, our customers use our cloud accounting software every day so they are very familiar with the company, the product and team. Also, our customer base is made up of business owners and entrepreneurs and that made it easy to explain the concept.
The £840k raised in less than 40 days is now being used to develop and market Clear Books Pro, a suite of new services aimed specifically at accountants to help them run their practices exclusively in the cloud. Our vision is to create the exclusively cloud based business software alternative to the dominant brand names, Sage and IRIS.
In summary, the landscape for business funding has altered significantly and banks and VCs needn’t be the default option for all companies. With our DIY crowdfunding initiative it was rewarding to see that the small business community was willing to support us too.
Tim Fouracre is founder and CEO of Clear Books. In July 2008, Clear Books was incorporated and Tim resigned from his position as an equity research analyst in the City to focus on Clear Books full time. He was 26 when he started and spent the first fifteen months working from home to get the venture off the ground.
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