Snact team Ilana and Michael took their business to the next level by raising £13,516; photo © www.snact.co.uk

Standing Out From The Crowd

11th November 2016

Thanks to the internet, individuals can now seize opportunities to interact with a vast audience – even to ask for funding for personal projects and campaigns that would otherwise beyond their means. Heather Harris investigates the increasingly popular concept of Crowdfunding...

Nineteen-year-old Hannah Moore from Dorset was desperate to have her leg amputated. She had been in constant agony for years suffering from the rare complex regional pain syndrome (CRPS). However, the NHS refused to sanction such a drastic solution… so she set about raising the money through crowdfunding.

“I simply went on the internet and explained what I was trying to do. Soon my friends and family had spread the word and started pledging money. I quickly reached the £10,000 needed and have now had the operation,” she recently told Breakfast Television, adding that she had no regrets as she was now “pain free”.

Simon Tofield, on the other hand, simply wanted some money to turn the cartoons of his cat into a broadcast length colour film entitled Off To The Vet. Over 9,000 supporters contributed amounts ranging from £1 to £2,000, and he broke the UK crowdfunding record by raising more than £284,000.

“Crowdfunding is not as simple as holding out a hat,” Emma Birch, Simon’s crowdfunding campaign manager, explains. “We had to ensure in advance that we could deliver on everything we promised, and all within a strict budget and timeline.”

The package included a range of rewards for supporters, including early viewing of the film, limited edition books, artwork and merchandise.

These two examples illustrate just how flexible the whole idea of crowdfunding can be. Put simply, it has turned the idea of finance on its head.

Traditionally, business and investment was all about asking a few people for large amounts of money. Then in 1997 the rock band Marillion couldn’t afford to tour, so their American fans used the internet (still a relatively new invention) to raise $60,000 so that they could play in the USA – and, hey presto, the concept of crowdfunding was born.

As Bruce Davies, from the UK Crowdfunding Association, tells me, “Crowdfunding switches the idea around, using the internet to talk to thousands – if not millions – of potential funders. Typically, those seeking funds will set up a profile of their project on one of the online funding platforms, and they can then use social media – and word of mouth amongst family and friends – to raise money.”

And the unique thing is potential investors can pledge as little as £1 because, as the old adage (and the current advert for that well known supermarket) reminds us, ‘Every little helps!’

Obviously, as with all things financial, things are never that simple, and, as this form of finance grew, UK regulators had to get involved. However, overall, the Treasury does support this new kid on the business block, and we are leading the way in Europe when it comes to the sheer number of successfully funded projects.

One of the most popular of the 500 online funding platforms is Kickstart, launched by five friends in April 2009 and now the world’s largest crowdfunding platform for creative projects. One of their 113 strong team reveals some astonishing statistics: “Since our launch, 11 million people have backed a project, $2.6 billion has been pledged, and 111,403 projects have been successfully funded.”

These range from a woman circumnavigating the globe solo by boat, numerous bands recording their first albums to a political cartoonist travelling to Afghanistan.

All these projects come under the first of the three different types of crowdfunding – Donation, Debt and Equity.

Donation or Reward-based crowdfunding is where people are basically investing because they believe in the cause. Bruce explains it simply: “Donors have a social or personal motivation for putting their money in and expect nothing back, except to feel good about helping the project.”

The popular UK site JustGiving falls into this category, as clearly does the £10,000 donated to Hannah.

These projects are also usually based on a ‘Keep What You Raise’ funding method. As its name suggests, this means that you get to keep all the money pledged whether you hit your target or not. Investors have to pay up even if they are the only person putting their money where their mouth is, and the average pledge size for this method is £10.

The alternative is the ‘All or Nothing’ method, where a target is set by the fundraiser when they first post details of their project. This is usually because they need a minimum amount to get their idea or invention off the ground. If the target is not reached, then none of the pledges are paid and the investors simply keep their money. As there is less risk involved, the average pledge made for this method rises to £50.

For small investors motivated more by financial return than simply a warm feeling, then Debt Crowdfunding has proved appealing. This is where investors receive their money back with interest but without involving traditional banks – clearly an attractive proposition for many.

A spokesman for Abundance, one of the leading online platforms dealing in this form of crowdfunding, says, “We have individuals investing anything from a fiver to half a million, but we treat then all the same as they are all important. Our focus is on projects providing a social or environmental good.”

As of January 2016, Abundance had raised over £14 million from the public for 16 successful projects, including a wind turbine in Gloucestershire, a residential solar project in the South Downs, biomass boilers on the Welsh border and free solar power for various schools across the UK.

“Obviously we have had failures but we make it clear to all our investors that there is risk involved, but there is also a unique opportunity to become part of a project which you believe in rather than just putting money into a bank.”
The final option for the man or woman with money burning a hole in their pocket or under the mattress is Equity Crowdfunding. Again, it does what it says on the tine: people invest in a project in exchange for equity in the form of shares, or a stake in the business. So if it’s successful the value goes up… and if it’s not, the value goes down.

Although the return for Donor, Debt or Equity Crowdfunding may differ they all offer the same close relationship between the project founder and the investor. Those putting the money forward really feel involved in the whole journey from initial idea to final fruition.

So what does make an attractive idea?

According to online funding platform Crowdfunder.co.uk, ‘The best question to ask yourself before launching is ‘Do I know ten people who would pledge towards my project and help me turn my great idea into reality?’…’.
Crowdfunder.co.uk has done its own research and found that projects which work well are those that can be categorised as ‘clearly needed, ideas that are unique or ideas that are attached to a larger cause’.

It’s a numbers game in more ways than one. “On our platform,” a Crowdfunder.co.uk spokesman says, “the average pledge is £50, so for every £10,000 you will be looking to find on average 200 backers. Not everyone will pledge, so for every £10,000 raised you will be looking at getting 1,000 to 4,000 people to view your project page.”

One of their most recent success stories was a project called Snact. After reading that 100 million tonnes of food are wasted in the EU every year and a large amount of this is fresh food, the Snact team developed a snack made from surplus fruit.

Founders Ilana and Michael share their story: “We started Snact in 2013 by collecting surplus fruit at London’s wholesale markets, making snacks in a kitchen in Hackney, and selling them at markets and events across London. With the incredible support of a growing crowd of Snactivists, we then raised £13,516 on Crowdfunder.co.uk to take Snact to the next level.”

In May 2016 Ocado began selling these fruity products online, making this a juicy investment for Snact’s 213 backers.

As the Snact team say, when little actions come together they can make something bigger than themselves – and that, in essence, is what crowdfunding is all about.

So what do we all think about my idea for a car that dogs can drive? Would you put your money behind it, or am I barking up the wrong tree?…

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