Crowdfunding steps in - where our banks fear to tread

NEWS FLASH: See the AMANO Tongue Cleanser website:  launched June 2014

The not so secret life of an e-commerce entrepreneur continues…

What has the Statue of Liberty got in common with Kickstarter?

Well in 1885 cash from more than 120,000 civic-minded Americans helped New York build the pedestal for the Statue of Liberty. That makes it the first record of ‘crowdfunding’ - comfortably beating Kickstarter by nearly 130 years.

Proving perhaps that not every good idea has been ‘discovered’ in the last 10 years.

And to reinforce that point - I’m launching my e-commerce business, the Amano tongue cleanser – which is based on a 2000 year Roman design for tongue cleaners.

However, to pay for my slick digital and social media marketing campaign I first need to raise some finance.

So I may need your help and advice (no please - put your wallets away for now)

But first how things have changed…

What were my options for business finance – back in the 1990s?

The options would then have been family, friends, personal savings – and then high street banks, in that order.

What are my options for business finance – Now?

Everyone who reads the press or Twitter knows that our banks simply do not want to be the first out of the trench, kick-starting the UK economy back into life. SME finance is apparently at a 3-year low – despite the Governments best endeavours to cajole and strong-arm them to open their vast wallets.

So what can a start-up entrepreneur do, faced with this ‘fact of life’?

Step forward crowdfunding – bravely venturing where our banks fear to tread.

Deloittes, an accounting firm, recently claimed that globally the general public will plough a whopping $3billion into crowdfunding schemes in 2013.

That all adds up to a revolution in the way that the publics savings are now being efficiently channeled into investment opportunities - rather than sitting idly in bank accounts, or under our floorboards.

There is a HUGE and delicious irony here…

Business commentators often ‘accuse’ the digital business world of being ‘all ideas and no tangible commercial delivery’ (with a few notable exceptions of course). Or in their language; “business X needs to monetize itself”.

Well perhaps the digital world is having the last laugh – because to me crowdfunding seems to be re-monetizing our very underfunded sme sector single handedly.

Take a bow all those who have pioneered this leap … Kickstarter

Indiegogo, Seedr et al…

I put this point to Jeff Lynn, the Co-Founder of Seedr; “ I agree completely. The problem historically has been that, in our debt-obsessed nation, there was far too little equity capital available. Crowdfunding is changing that by going straight to the individual investors and letting them make their own decision about how best to invest in startups”.

That’s settled then - I’m going to be taking advantage of this new frontier and will be pitching a portion of my Amano Tongue Cleansing business to the members of an appropriate crowdfunding scheme.

How does crowdfunding work?

It all very simple, as befits the digital age. The Entrepreneur completes a business plan and financials, plus films a video interview. They outline how much they need to raise and for how much equity they wish to give in exchange.

They also spell out the perks that go with each level of equity investment. This is a nod towards the civic antecedents of crowdfunding. For film funding it is usually roles as an extra in the film, for my Amano Tongue Cleanser it will be ‘free’ tongue cleansers every year (naturally).

So what does a prospective Investor have to do?

Investors are either existing members of a specific crowdfunder or others drawn in by a particular Entrepreneur‘s social and digital media campaign around their business pitch. Having enrolled with a crowdfunder, Investors can review the information available on any business that happens to catch their eye. If they wish to invest – the minimum figure is usually £100 – payment as befits the Internet site, is almost as simple as ordering a book on Amazon.

Most sites have eye catching graphics that show how much of the finance target has been raised for each business being pitched, how many Investors have signed up – and even what other ventures these Investors have already backed.

All very civilised and so far removed from the dispiriting world of high street bank loans and PGs (that means ‘personal guarantees’ on your home).

The rule is usually if the business looking for finance reaches its target – it gets the money pledged. If it fails to reach its target – it doesn’t get a penny and all the money pledged is returned to the Investors. And all of this is for a fee of about 5% of funds raised.

As I said, crowdfunding seems to be re-monetizing our very underfunded sme sector in a way banks simply do not seem to be capable of – in both absolute £ funds terms and in the smooth digitalised and social media way it is being done.

What is the right crowdfunder for my business?

Now since my business is neither a film, album or artist tour – it does not necessarily fit the profile demanded by some crowdfunders. Similarly the Amano Tongue Cleanser is not a mobile gizmo, app or technological leap into the unknown. So what is the best crowdfunder for my business – the designing, manufacture and brand marketing of a niche oral care product, via E-Commerce?

Jeff Lynn of Seedr told me; “The most important thing in crowdfunding is mobilising the crowd: if you can get friends, acquaintances and total strangers excited about your fertiliser business or your new café, then crowdfunding can work brilliantly for you. Creative sector businesses tend to be at the vanguard of movements like this, but by no means is crowdfunding limited to them”.

That’s reassuring – seems then that some time soon I will be waiting with bated breath.

In the hope and expectation that the crowdfunding of the Amano Tongue Cleanser will deliver the sweet smell of funding success…