November 30, 2017
The North East has had a rough time in terms of funding options in 2017. Perhaps the biggest let down was the announcement of ‘No JEREMIE funds’.
But there have been some good things, too: Finance Durham Fund was launched, ARCH and LEADER have continued to fund in rural areas and the North East LEP have continued to support regional capital projects
But if we look, holistically, we’d have to say it’s been a pretty poor year in the funding world.
One tool that start-ups and scale-ups have right now is crowdfunding and at Current Capital, we are supporters of crowdfunding, for the right businesses.
This style of financing has its advantages and disadvantages and should be part of any thorough funding scoping exercise. But, be cautious too, as for many companies, the burdens that this type of funding puts on them is significant and shouldn’t be taken lightly.
Is Crowdfunding the right choice?
With this type of funding, a share in a business is provided to investors in exchange for their investment. On the face of it, the process seems great – until you dig under the skin a bit deeper.
Depending on the platform a company chooses, they could be stuck with some or all of the following: raising fees, monitoring fees, payment gateway fees, legal fees and application fees, just to name a
few. What this means is that from all the funding that the company raises, they may see as little as 80 per cent of it by the time they’ve paid all the people in the funding chain. And none of these fees cover having to deal with potentially thousands of investors going forward.
What are the options?
For some businesses, it may make sense to look internally and reject outside platforms to help reach their funding goals. Maybe what they need to look at is a more insular model. At Current Capital, we call this type of crowdfunding Co-op Funding.
This type of insular model leverages the same ‘crowd’ mentality but is controlled entirely in house. If a business has a raving and loyal fan base, this can be a great answer. Think Kickstarter on steroids but with total internal control.
The positives of this type of funding are focused on the control element of the campaign. No more dull templates, stale messages and relying on others to get the message out. It’s entirely in the business’s hands. By keeping most of the work in house, the fees reduce to a manageable level, which means the business gets to keep more of the funds raised. And most importantly, all the backers of the campaign are owned by the business – not the platform.
While there are negatives with this type of strategy – the time factor for example – many of the goals a business has for itself are directly aligned with the funding project anyway. The company wants to grow their audience, talk to and engage with their fans, clients or connections, and they want to sell more of whatever it is they do.
There is no question this type of funding is hard work and can be time consuming but doing it right, in house, is sometimes the best way – and it gives you another tool in your funding toolbox.