Last night, Escape the City hosted Darren Westlake, CEO and co-founder of Crowdcube, the world’s leading investment crowdfunding site, enabling investors to help entrepreneurs raise the finance they need to grow. This guest post was written by Mathy Lisika-Minsende (@whathejobisthis on Twitter).
I spent this week entirely surrounded by crowdfunding education. After attending the Esc event on Equity crowdfunding and another series of crowdfunding events, I think I’ve reached my limit. I’m ready to buy my new t-shirt titled “OFFICIALLY crowdfund certified”.
I had seen crowdfunding first-hand and was personally involved in funding an online web series called Awkward Black Girl which went viral in 2010 and is now under Pharrell Williams’ production company. The part which I enjoyed the most was when Rob said that he wanted to build Esc the city with “people who trusted us and believed in us” – this really resonated with me.
My first hand experience of Crowdfunding
In my first year of business, I managed to raised £1500 towards the cost of equipment and venues to run workshops and events. I didn’t think it would be possible. But I asked my followers on Facebook, Twitter, friends and family. Though they always like to see me as the nutter with a new crazy business ideas, they believed in me enough to part with cash.
When I was a child, my uncle used to tell me this story about growing up in his home village Bumba, in the north region of the Congo. This story was how his grandparents and uncles sent their children to schools including himself. If a child was underprivileged the parents would approach the village elders and ask them to help them send their children to a good school, in the city or abroad. They would ask for a certain amount, for various items including school fees, books, travel, etc. The whole village would contribute and when the child had completed his schooling or degree, he would be asked to come back to his village and reinvest the new and acquired skills to help the village prosper.
This is where the term ‘it takes a village to raise a child’ comes from, I believe.
Crowdfunding for dummies.
So this is my best interpretation of crowdfunding and equity crowdfunding.
Crowdfunding (e.g.Kickstarter) is raising money from the crowd, loyal fans and followers, to test a project, new business concept or product and to see if it works in return for a pledge.
Equity Crowdfunding (e.g. Crowdcube) is when the crowd invest in an unlisted company in exchange for shares in that company.
Tips from the Crowdcube team
Darren, the CEO and co-founder of Crowdcube, mentioned that:
It takes 3-4 months to raise money so you should be building traction;
As an entrepreneur, he believes that we should always be in the habit of raising money;
Have a business plan;
- Set a lower target as you have to hit your target in order to fund (otherwise you receive none of the funds). Then set a second higher overfunding target which represents the maximum amount of shares you’re willing to give away. If you hit your initial target and go into the overfunding range you can close the funding round at any time.
It’s great to have around 30% of the funds lined up intially from other investors to get your crowdfunding campaign going on the site with an initial boost. People like to see that some people back your concept other than them before the invest.
When choosing and deciding between the two options, this is what was recommended by both Darren and Rob.
Rewards-based Crowdfunding is typically best used at the very beginning of your project or idea, to create traction and interest and a community of believers.
Equity Crowdfunding is typically best used when you’ve tested the idea long enough and can prove it will be profitable.
My Uncle’s story and various case studies gave me a better understanding of what Rob meant and said; that he wanted to build a community with “people who trust and believe in us.” So in order to build a great crowdfunding campaign, you need to inspire the right crowd to invest in you.
I don’t know about you, but I’m going to get this crowdfunding data into practice and use it for my next project.