crowdfunding and online sme funding sources...crowd funding! platforms – seedrs, sponsume,...
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Prof. Paul Foley, Tech4i2 Ltd.
Crowdfunding and online SME funding sources
North West Leicestershire Means Business
Donington Park – 9th May 2014
Business Finance in Europe
Source: European Central Bank
Business Finance in Europe
Source: European Central Bank, Bank of England
Business Finance in Europe
Source: European Central Bank
Sources of Business Finance What are the relative levels of
lending if one compares:- • Bank funding • Venture capital funding • Business Angel funding
Sources of Business Finance
Venture capital funding is eleven times greater than Business Angel funding
Bank funding is 7,714 times greater than Business Angel funding
Peer to Peer Lending Consumer Platform - Zopa, P2P. Business Platform - Funding circle. Peer-to-peer lending (P2P) is an online process that matches investors with capital directly with borrowers looking for a loan, sidestepping the bank in the process. The various P2P platforms provide a very attractive proposition for investors, the interest rates and returns on offer are much higher than from the banks.
Advantages: Borrowing via P2P lending is generally a far simpler and quicker process than borrowing from a bank – borrowers access finance within days or weeks rather than months. Disadvantages: Businesses wanting to borrow money usually have to have their financial information published for investors to view. P2P lenders have strict lending criteria. Need to ensure your business has a good credit history.
P2P Business platform
www.fundingcircle.com
• 29,000 Investors in the UK have lent over £260m to businesses
• Investors can lend to a number of businesses to spread the risk
• Businesses make monthly repayments back to the investors
www.zopa.com • Founded in 2005 - the UK’s leading P2P
lending service
• Lent over £520m with over £28m in interest earned
• Safeguard feature to cover investors if a borrower is unable to repay
P2P Consumer platform
Crowd Funding Platforms – Seedrs, Sponsume, Crowdfunder and Kickstarter Using online platforms ordinary people and experienced investors alike can support the projects they believe in by investing money in exchange for shares in the businesses. If you want to raise finance in this way you usually need to produce a video pitch.
Advantages: Crowdfunding platforms provide an opportunity for businesses to reach out and invite investors to be a part of their success. It is also a powerful marketing tool to reach new audiences through social media and the press. It can be a flexible alternative for businesses who aren’t yet ready for angel investment or a bank loans.
Disadvantages: If you’re going to pursue crowdfunding for equity, you need to put energy into the campaign. It can take a long time to get together all the finance. By selling equity to a crowd, you may not receive the same mentor input and expertise that might be gained from an angel investors.
Crowdfunding platforms
www.seedrs.com • Started development in 2009. Launched 2012
• Has provided funding of £7.5m to UK start-ups
• Investors from 44 countries, investing as little as £10
www.angelsden.com
• £16m in investments so far.
• 6,000 Investors,
• 20 Experts in 10 offices worldwide.
Seedrs 29 April 2014
9 days, later 8th May
Kickstarter
Alternative Business Funding alternativebusinessfunding.co.uk, launched in April 2014, provides a free and easy way for SMEs to find alternative business funding. Especially for those with an interest in the non-bank business funding sector.
Alternativebusinessfunding.co.uk
Pension based funding • Based on the use of pension benefits accrued
by owners or directors of the business
• The only limitation is the amount of pension funds available, funding is not usually viable when accumulated pension funds are below £50,000. www.pensionledfunding.com
www.marketinvoice.com
• Invoices are listed in an online auction
• Investors then compete to provide funding, in turn driving down the cost of finance
• The whole process usually takes less than 24 hours
Invoice based funding
In Practice… • Raising finance traditionally takes 3 to 12 months.
• Requires many meetings and pitches.
• Everyone will want their own version.
• Costs can be £5,000 to £10,000 upfront + 5%.
• Need to be resilient!
