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‘We turned our back on banks’: ParcelHero on crowdfunding

I first set up in business 18 years ago, and have built a number of companies from scratch. Cash flow and funding has always been a key issue, as it is for many businesses. ParcelHero is an online international courier service, so our business depends on technology, and that has always required significant investment. At one point, technology costs made up 30% of our turnover! 

Over the years we have been very successful in raising finance from our banks, but only after months of work on first creating then adjusting the plans to fit in with the banks financial conditions. Every time we have applied for finance it’s been a huge drain on my time, which, in turn, has affected my ability to do the most important thing: drive the business forward. 

This year is an exciting one for the business as we move forward from being a smaller SME to a medium-size company – capitalising on the rise in e-commerce and the parcel delivery industry that supports it.

However, it’s certainly not the best year to approach the banks. Last week the Bank of England announced lending to British businesses actually fell again in the second quarter of this year. 

Lending under the Funding for Lending Scheme fell by 3.9bn in the three months to July. Net lending to small and medium size SMEs fell by 435m. 

These figures are not encouraging for a growing SME like ParcelHero.

The thought of having to go, cap in hand, to the banks once again, and facing even more bureaucracy than ever, was frankly frustrating. Happily, however, the very technology that drives our business, the internet, also provides an alternative funding method, crowdfunding.

Last year I took out our first crowd funded loan. Our loan application took a few minutes, and was based on our credit rating and last set of accounts. No more jumping through interminable hoops (they didnt even want to see a business plan!). It was up to the crowd to decide if they wanted to fund us or not. The model just made perfect sense to me, and really worked. The interest rate was double the one we could get from the bank, but the time I saved was worth it. 

This year we are applying for another round of crowdfunding to expand our business further and move into international markets, but this time it’s not for a loan, it’s for an equity stake in the business. We are offering an 8% share in our group for funding of 300k, through one of the leading players in the market, Crowdcube, and the entire process has been a real eye opener. 

This time we certainly did need to show a business plan and financial projections, and also a clear, concise and punchy pitch and video (which was frankly the most traumatic part of the process). However, it is exciting to explain our vision for the future, so this was not at all like unravelling the red tape of a bank loan. 

Furthermore, what really excited and intrigued me about offering equity through crowdfunding is that we will essentially be a public company, with a whole crowd of investors-come-brand ambassadors coming on board to help to wave the flag. 

We chose Crowdcube in particular as it’s the worlds leading equity crowdfunding site, we liked its technology and approach, and we saw there was lots of activity and a very vibrant marketplace for company placements which was really attractive to us. They were also extremely accommodating and full of advice on the model and how to make the most of it. 

As part of the set-up process we had to apply to HMRC to be eligible for the government backed EIS scheme which entitles investors to a 30% rebate on any investment they make and further protection if the company fails, which is highly attractive to investors. 

I also then took up the opportunity to do something I have wanted to do for a long time, create an employee share incentive plan (SIP) enabling all our staff to become shareholders. We are offering them all free shares and also the opportunity to buy further shares, giving us a motivated, involved and passionate workforce who will truly share in our success. 

As I write this, our offer has gone live and we are concentrating on winning the funding. Crowdfunding is all about – as the name suggests – getting funding from the crowd. Were not an exciting or sexy business in many peoples eyes, were a delivery company. So it’s all about the pitch, and communicating my passion for the business. 

What I didnt realise at the beginning of this process is that it’s not just as simple as putting a pitch up there, and watching the money role in. Yes, Crowdcube do have over 85,000 members and your company is featured in its newsletter at various points, but you can’t reach out to them directly, so what then Investors already on Crowdcube will get you part of the way, but the most critical part is getting friends, family, colleagues and even customers involved and striving to get funding beyond the psychological 35% level that gives investors confidence in you and your offering and makes them more likely to buy themselves, because they also trust in the crowd.

Getting to this level however is a huge challenge and requires a lot of thinking outside the box. Not only reaching out to your circle, but coordinated, marketing and social media campaigns and even directly to investors via Social networking. On top of this comes the PR and investor events and thats just the start of it! Its a huge challenge, and really an eye opener as it forces you to think about how to communicate your business model and vision, and how this is perceived, and there are lots of lessons I will be taking into my everyday business.


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