Frustrated by the poor interest rates offered by bank and building society accounts, and fed up with the struggle to be approved for loans, small businesses are increasingly turning to crowdfunding to finance their ventures.
According to Nicola Horlick, who is setting up her own crowdfunding website, Money&Co, based on her success earlier this year when she raised £150,000 for film finance company Glentham Capital in only 22 hours: “Crowdfunding is all about cutting out the middle man and allowing small businesses to get the funding they need without banks taking a slice of their margins in fees from when firms take out business loans… For savers, these ventures offer the potential for much greater returns.”
There are many benefits of funding a business venture in this way. Successful crowdfunding stories are extremely ‘of the moment’, and the easiest way to gain the much needed publicity and momentum for a startup, by creating an original, unique and visible marketing campaign. Secondly, crowdfunding generates a culture of trust, which is vastly beneficial to the success of businesses. By starting a crowdfunding campaign, companies completely open up their startup to be scrutinised; any investors make their pledge based entirely on their assessment of what they see. When a startup is successfully funded, and invested in by lots of people or companies, it projects an overwhelming impression of trust and security for consumers. Having many investors also create a ready-made customer base, so companies go into market strong from the off.
The Pebble Time smartwatch is probably one of the most famous crowdfunding success stories of all time. In March 2015, it raised a massive $20m from an astonishing 78,471 Kickstarter backers, storming past $1m in just 30 minutes.
Below is a list of significant, crowdfunded start-ups to look out for in 2016.
- Pact Coffee Listed among the top 20 start-ups in the UK right now, Pact has enjoyed incredible success from their Kickstarter campaign, which has been well overfunded, at £27,503. With this funding, the company are going to launch the production of their own, Nespresso-compatible coffee pods, available in both along and short sizes. Over the next 12 months, Pact is predicted to continue its 20% month-on-month growth and aims to be able to directly source 100% of its coffee, making its supply chain more efficient.
- Property start-up eMoov has raised £2.6m via Crowdcube. With an initial target of £1m, this is a stupendous oversubscription, with some of the 795 investors including venture capital firms Episode 1 Ventures, Maxfield Capital Partners, and Startive Ventures. 2016 is set to be a fantastic year for the company, which expects to hit £39m turnover by 2018, using the investment to drive growth with a new lettings proposition and global expansion.
- Sourced Market is yet another oversubscribed success story. The company managed to secure £1.04m through their mini-bond scheme on Crowdcube, with its 263 investors taking it well over its original funding target of £750,000. Launched in August 2009 in St Pancras International Station by Ben O’Brien and Dan O’Neill, Sourced Market claims to serve 12,000 customers per week and achieved £2.9m in net revenue in its last financial year.
- The exam preparation app Gojimo, founded byyoung entrepreneur George Burgess, exploded into the market last year, with numerous high-profile investors including Robin Klein, Deborah Quazzo, Boris Johnson’s London Co-Investment Fund, Firestartr and the CrowdBnk platform, enabling it to smash its £500,000 target and raise £1,115,411 in exchange for a 9.09% equity stake. Launched in 2014, the app provides over 180,000 quiz questions for all major GCSE and A Level subjects, the 11+, 13+, and the International Baccalaureate, and enables users to track their progress over time. It claims that more than 300,000 students used the app in May 2015, accounting for 20% of all GCSE and A Level students. The funding will be used to fuel the company’s growth over the next 12 months as it prepares for a Series A round, alongside the development of a social and competitive feature.
- London Union also benefited from a number of high profile investors. In June 2015, the startup raised £1m from a number of high-profile founder investorsincluding Nigella Lawson, Jamie Oliver and Yotam Ottolenghi, and has garnered a cool £2.5m through early-stage equity crowdfunding platform Seedrs. Founded by Leon’s Henry Dimbleby and Street Feast’s Jonathan Downey, the company wants to convert the underused and derelict areas of London into bustling street food markets. In total, 160 individuals entered into the funding, committing between £5,000 and £200,000 for an estimated 11.86% stake in the business. The company is also currently in the process of raising an additional £1m from private investors. The finance will be used to fuel the development of a flagship street food market in central London and 12 local markets across the city. The business is going from strength-to-strength: its three Street Feast markets, in Dalston, Lewisham and Shoreditch, generated £3.5m in revenue and 300,000 visitors during their first five months of life, and it is expected that there will be 1.5 million visitors to its markets throughout 2016.
Author: Eugene O’Sullivan, London Commercial Property Agent