Where to find funding for your start up or growing business. A particular focus on crowdfunding

1. Finding the money
Stuart Hartley

2. Finding the money
• Four ways of getting money:
− Equity – Dragons Den
− Debt – bank overdrafts / loans / credit cards
− Public sector grants
− Crowdfunding

3. 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 £

4. What are your costs
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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 £

5. Personal funds from family or
friends.
No guarantee that they will get
the money back
Business Angels investment for
a share of the profits / company
May want day to day
involvement may not
Typically for more established
businesses
Larger levels of investment
A relatively new way of equity
funding your business.
Projects usually in the region of
£50,000 to £1m

6. 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

7. 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?

8. Crowdfunding

9. What’s your definition?

10. Definition
• “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”

11. 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

12. 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!

13. Let’s name the platforms

14. A “Crowded” Market?

15. Can you identify the types?

16. 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

17. 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

19. Crowdfunding: Donations
• indiegogo.com – strong arts focus
• Buzzbnk – support for social enterprises
• SolarSchools: solar panels for schools

20. 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

22. 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

23. 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)

24. 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

25. 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

26. Case Study

27. 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

28. 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

29. 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”

30. What Is Crowdfunding Not?
• A panacea
• The only answer
• Easy!

31. The Process

32. 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

33. Choose Platform
• Rewards or donations?
• Look and feel
• Ease of use
• Fees
• Timescales
• Audience and motivation

34. Pre-start New start Early growth High growth Maturity

35. Which platform would be best for you?

36. 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

37. Donors Pledge
• All or nothing?
• Automated or personal thank you’s?
• Engagement – make pitch viral (1-42…….)

38. Project Proceeds
• Keep crowd informed
• Maintain regular dialogue
• Offer benefits (tangible or intangible)

39. Typical Costs
• Pitch fee: cost of video/story?
• Success fee: 3% to 5% +
• Mostly all or nothing!

40. 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
existing supporters
Find third parties to offer
prizes/rewards
Offer donors chance to
engage as well as donate

41. 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

42. 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

43. 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

44. 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