Posted: Wed 11th Jan 2012
While trying to raise money to launch his product, Tony Curtis of Alago explored crowd funding, a way of raising small sums from large numbers of people offered by several sites. Sadly, he didn't find it a worthwhile experience. Here, Tony explains what happened and how he thinks crowd funding websites can improve their offer to both business owners and small investors.
If you have a business idea and need funding, if you need capital to grow your business or if you need to raise finance to begin on your business dream then you know all too well the difficulties of finding that money. For a long time, there have been few lenders with their hands on large amounts of money who are very reluctant to give it out unless an almost guaranteed return is likely. This had led many people with great business ideas quitting or not even beginning their businesses. I have been in this situation myself very recently. I needed to raise Â£10,000 to fund my first order of stock to begin trading. After trying several banks, regional development agencies and even the Dragons' Den I decided to try a different approach. Recently, there has been a new type of funding which appeared to have flipped the idea of few lenders with big money on its head to have a large number of lenders with just a little amount each. I'm talking about crowd funding. What a great idea, I thought to myself. If a thousand people just give Â£10, then I'm in business. Â£10 is not a lot of money to invest and what a way to get going! I began looking a well-known crowd funding website to see if my ideas could fit into what they already had. It did. Then I looked to see if people had raised similar sorts of money to what I needed. They had. Great! I contacted the crowd funding website and asked to join. Following a few simple emails with details I was on, but there were a few things that needed to be done first.
Crowd funding from the business owner's viewpoint
To start, you need to give people an incentive or reward for funding you. No problem. I gave rewards for a donation from Â£10 to Â£500 including hugely discounted products, free products when they are launched and even invitations to launch parties and events. Next you needed to put your pitch together. The best way I saw to do this was with a video. So I put a short video presentation together which included me on camera, animations, photographs and explanations of who we are and what we do. It was my first attempt at that sort of thing but I thought it was pretty good. That was then posted along with a written version and additional photos down below. The final thing I had to do was to invite people I knew to use it. Wait, what was that? I had to get people I knew to fund me through this site? 'Yep'. Isn't that just another way of asking friends and family to fund you? 'Yes, kind of'. But don't you take five per cent of the funding raised? 'Yes'. Why don't I just ask my friends and family direct for the funds and cut out the middle man? 'Well, you can invite all your friends on your social media sites to invest too'. Oh, ok. So I posted and invited all 1,884 friends I had on Facebook to come and have a look at the site. They could pre-order the products and get great rewards for helping to fund us. No response. Ok, I'll keep posting with different ways of getting them to look featuring the different products. Nothing. Hang on; I had products that 1,884 people wanted to be friends with me to get more information about. I have emails asking when they would be for sale and where they could get them. So something was wrong somewhere.
Crowd funding from the investor's viewpoint
Not quite the Holy Grail?
What I have learnt from my experience with crowdfunding is that, unlike Kevin Costner's 'Field of Dreams', just because you build, it doesn't mean they will come. Inviting friends and family to fund you through it is not very straightforward and asking 'friends' on your social media sites is like taking a horse to water. I am sure it has helped people find funding before but be aware that it is not the holy grail of funding it is sometimes made out to be. What did it for me was to re-evaluate my business plan and financials and approach yet another few banks. One believed in the business and released funds. The old ways won out this time. Photo credit: Shoothead
What do you think about crowd funding?
Have you raised money or invested in a business through crowd funding? How did it work for you? Please leave your comments below.