how can equity crowdfunding help my business?
TRANSCRIPT
Have can
Equity Crowdfunding help my
Business?A brief introduction to Crowdfunding
This webinar will give a brief history of this new internet phenomenon and its place in the funding of new ideas and companies. Equity crowdfunding, in particular, will be discussed and illustrated with a particular (successful) example.
There is a link at the end of this deck to the associated blog and webinar recording.
Biz Smart Webinar :
A Brief Introduction to Crowdfunding
A Brief Introduction to Crowdfunding
• 1. What is Crowdfunding ?
A Brief Introduction to Crowdfunding
• 1. What is Crowdfunding ?• 2. Will it be right for me?
A Brief Introduction to Crowdfunding
• 1. What is Crowdfunding ?• 2. Will it be right for me?• 3. Where can I get it ?
A Brief Introduction to Crowdfunding
• 1. What is Crowdfunding ?• 2. Will it be right for me?• 3. Where can I get it ?• 4. How much will it cost ?
A Brief Introduction to Crowdfunding
• What is Crowdfunding ?
A Brief Introduction to Crowdfunding
• What is Crowdfunding ?• It is getting a large number of individuals
to provide you with small amounts of money for your business rather than asking a single entity or a few people to provide large amounts.
A Brief Introduction to Crowdfunding
• What is Crowdfunding ?• It is getting a large number of individuals
to provide you with small amounts of money for your business rather than asking a single entity or a few people to provide large amounts.
• This can be in the form of a loan or equity or even by a “reward scheme”.
A Brief Introduction to Crowdfunding
• What is Crowdfunding ?• It is getting a large number of individuals
to provide you with small amounts of money for your business rather than asking a single entity or a few people to provide large amounts.
• This can be in the form of a loan or equity or even by a “reward scheme”.
• All done online
Sources of Finance
• DEBT
Sources of Finance
• DEBT• EQUITY
Sources of Finance
• DEBT• Family and Friends
Sources of Finance
• DEBT• Family and Friends• Banks
Sources of Finance
• DEBT• Family and Friends• Banks• Peer to Peer Lending (P2P)
Sources of Finance
• DEBT• Family and Friends• Banks• Peer to Peer Lending (P2P)• EQUITY
Sources of Finance
• DEBT• Family and Friends• Banks• Peer to Peer Lending (P2P)• EQUITY• Potential Partner or Business Angels
Sources of Finance
• DEBT• Family and Friends• Banks• Peer to Peer Lending (P2P)• EQUITY• Potential Partner or Business Angels• Venture Capital
Sources of Finance
• DEBT• Family and Friends• Banks• Peer to Peer Lending (P2P)• EQUITY• Potential Partner or Business Angels• Venture Capital• Equity Crowdfunding
History of Crowdfunding
• Started as a method of collecting many small contributions by means of an online platform, typically in return for a “reward”
History of Crowdfunding
• Started as a method of collecting many small contributions by means of an online platform, typically in return for a “reward”
• First people to do it were a UK Rock Band called Marillion to finance their reunion tour of the USA in 1997.
History of Crowdfunding
• Started as a method of collecting many small contributions by means of an online platform, typically in return for a “reward”
• First people to do it were a UK Rock Band called Marillion to finance their reunion tour of the USA in 1997.
• According to the US, it started in 2003 with a jazz album through a platform called Artistshare in New York.
History of Crowdfunding
• In return for a contribution to the Marillion tour fund, fans were essentially guaranteed a ticket - probably for the best seats in the house - to see their heroes.
• The band had the reassurance that they could afford to tour the USA, with all the attendant costs, before leaving these shores.
History of Crowdfunding
• With the jazz album, rewards varied.• $10 got you the right to download the
album first• $250 got you a listing on the album credits• $10,000 made you an executive producer• The $130,000 raised was used to rent the
recording studio, pay the musicians and produce and market the album which won a Grammy in 2005
History of Crowdfunding
• Artistshare (2003)
History of Crowdfunding
• Artistshare (2003)• Indiegogo (2008)
History of Crowdfunding
• Artistshare (2003)• Indiegogo (2008)• Kickstarter (2009)
History of Crowdfunding
• Artistshare (2003)• Indiegogo (2008)• Kickstarter (2009)• Expanded into other areas of the arts
History of Crowdfunding
• Artistshare (2003)• Indiegogo (2008)• Kickstarter (2009)• Expanded into other areas of the arts• Theatre, Dance, Fashion, Video, Film
History of Crowdfunding
• Artistshare (2003)• Indiegogo (2008)• Kickstarter (2009)• Expanded into other areas of the arts• Theatre, Dance, Fashion, Video, Film• Social Causes, Animals, Health, Charity
History of Crowdfunding
• Artistshare (2003)• Indiegogo (2008)• Kickstarter (2009)• Expanded into other areas of the arts• Theatre, Dance, Fashion, Video, Film• Social Causes, Animals, Health, Charity• Moved into the Business Sector in 2012
History of Crowdfunding
• KICKSTARTER• Hosted over 250,000 campaigns• Success rate of 40%• These 100,000 have raised appr. $2 billion• Music and Film/Video still largest sectors• Moved into the Business Sector in 2012• Restricted by US Law in what they could do
in the Business Sector. JOBS Act 2012
History of Crowdfunding
• KICKSTARTER• In 2012 a campaign aimed to raise
$100,000 for a Pebblesmart watch.
History of Crowdfunding
• KICKSTARTER• In 2012 a campaign aimed to raise
$100,000 for a Pebblesmart watch (Put in $100 and get one worth $150 RRP)
History of Crowdfunding
• KICKSTARTER• In 2012 a campaign aimed to raise
$100,000 for a Pebblesmart watch (Put in $100 and get one worth $150 RRP).
• Money to be used for development, tooling, production, marketing.
History of Crowdfunding
• KICKSTARTER• In 2012 a campaign aimed to raise
$100,000 for a Pebblesmart watch (Put in $100 and get one worth $150 RRP).
• Money to be used for development, tooling, production, marketing.
• Raised over $10 MILLION
History of Crowdfunding
• KICKSTARTER• In 2014 the CoolestCooler Coolbox asked
for $50,000 for tooling,production and marketing and got………………..
History of Crowdfunding
• KICKSTARTER• In 2014 the CoolestCooler Coolbox asked
for $50,000 for tooling,production and marketing and got
•$13,000,000
Is Crowdfunding the right thing for me ?
• .
Is Crowdfunding the right thing for me ?
• Depends on what you want the Finance for and your view of traditional routes.
Is Crowdfunding the right thing for me ?
• Depends on what you want the Finance for and your view of traditional routes.
• Capital Equipment or Premises - • Likely to be a Loan : Bank or P2P
Is Crowdfunding the right thing for me ?
• Depends on what you want the Finance for and your view of traditional routes.
• Capital Equipment or Premises - • Likely to be a Loan : Bank or P2P• New product with a large upfront cost -• Loan or a Kickstarter approach
Is Crowdfunding the right thing for me ?
• Depends on what you want the Finance for and your view of traditional routes.
• Capital Equipment or Premises - • Likely to be a Loan : Bank or P2P• New product with a large upfront cost -• Loan or a Kickstarter approach • A New Stand Alone business -• Equity : Partner, Angel, VC, Crowdfunding
Where can I get Crowdfunding ?
• Loan : Peer to Peer lender• Reward : Kickstarter type platform• Equity : Equity Crowdfunding platform
Peer to Peer Lenders P2P
• Zopa (2005), Ratesetter (2010), Funding Circle (2010) all lent over £1 billion
• Members of the Trade Association• Peer to Peer Finance Association • along with Thin Cats, MarketInvoice,
LendInvest, Lendingworks, Landbay and Madiston
Peer to Peer Lenders Who Borrows ?
Zopa : New Car, Home Improvements, Debt Consolidation.Ratesetter : Individuals, Small Businesses, Property Developers.Funding Circle : Business loans between £5,000 and £1million for 6 months - 5 years. LendInvest and Landbay : Professional Landlords and Developers.
Peer to Peer Lenders What is the cost ?
Ratesetter : Fees are risk weighted. They cover arrangement and management of the loan and a contribution to the bad debt provision fund.Funding Circle : Fee to FC of between 2% and 5% depending on length of loan and credit risk assessment. Interest rates ? % Depends on amount, security etc.
Peer to Peer Lenders What is the risk ?
In 2015, Trustbuddy – aptly named – filed for bancruptcy shortly after its UK opening.In 2016, Funding Knight ran out of cash.Even Funding Circle (n.b. lends £1.5 billion) and is the third biggest lender to UK SMEs after RBS and Lloyds.Had losses last year of £40million on turnover of just £32million. Secured £120million investment for themselves in 2015.
Reward Based Crowdfunding Platforms
• Kickstarter UK• Indiegogo• Crowdfunder.co.uk• Sponsume.
• Fees around 5% PLUS 3 – 5% for processing !
Equity Based Crowdfunding Platforms
• Crowdcube• Seedrs• Syndicate Room
Equity Based Crowdfunding Platforms
• Syndicate Room
• Backed by Experienced Angel Investors• Mainly for startups• Fee 4% plus £1500 set up PLUS £1500 to
£3000 annually until the shares are sold.• Both EIS and SEIS
Equity Based Crowdfunding Platforms
• Seedrs
• Mainly run by lawyers• Fee 6% up to £150,000, 4% for £150 -500k• 2% above £500k• Plus £2000 completion• Mainly EIS
Equity Based Crowdfunding Platforms
• Crowdcube• Started Equity Crowdfunding in 2011• Startups• Moved into raising large loans as well.• 300,000 InvestorsFees 7% plus completion fee of £1750• Almost all SEIS or EIS
SEIS and EIS Schemes
• UK HMRC schemes for encouraging investment in SMEs.
• Enterprise Investment Scheme for companies which have not been trading for longer than 7 years
• Seed Enterprise Investment Scheme for companies which have not been trading for longer than 2 years
SEIS and EIS Schemes
• Income Tax Relief • Capital Gains Tax Relief• Capital Gains Tax exemption• Loss Relief against Income Tax
SEIS Scheme
• Income Tax Relief : 50%• Maximum £100,000 Can carry back 1 year• Capital Gains Tax Relief : Half Rate• Capital Gains Tax exemption : FULL• Loss Relief against Income Tax : Max Rate
• Company Maximum £150,000
EIS Scheme
• Income Tax Relief : 30%• Maximum £1,000,000 Can carry back 1
year• Capital Gains Tax exemption : FULL• Loss Relief against Income Tax : Max Rate
• Company Maximum £5 million
Example : Crowdcube : FLOODKIT
• Amount Raised £135,000 SEIS (for 20%)• Number of Investors 110• Length of time 6 months• Costs • Crowdcube £8000. • Lawyer (completion) £1750. • Video for “pitch” £1500• NEW Company
Can you now answer these questions ?
• 1.What is Crowdfunding ?• 2. Will it be right for me?• 3. Where can I get it ?• 4. How much will it cost
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