Crowdfunding in action: future calls

With crowdfunding experiencing phenomenal growth IFA Magazine is looking into the nitty gritty of this fast developing industry, with a special focus on young British designer Charli Cohen as she looks to secure backers for her sportswear crowdfund. In this week’s update we check on progress by Cohen’s venture and ask industry leaders to consider the medium to long-term outlook and challenges for their sector.

Cohen’s CC Effect venture, which has won considerable praise from experts, was launched  on the Kickstarter platform on 29 October. The target is to secure £30,000 in 30 days to November 28, with funds used to take her “new, luxe, fashion-forward” technical sportswear collection to market via a pop-up shop in Central London.

As of mid-day today, with seven days of campaign left, Cohen has secured 111 backers pledging a total of £26,235. So far, so good but Cohen and her team are taking nothing granted.

Michaela Deasy-Smith, creative director for The MD Collective, a marketing and sales expert focused on supporting young British designers has been working with Cohen on the CC Effect campaign. She says of the project: “It will have been 30 days of nail biting, but worth it. It will be such a shame though if we fall short, because the rules are that if we don’t make our £30,000 we don’t get a penny. When people find that out they are shocked… I tell absolutely everyone the reality of the situation so they understand how crucial this campaign is.”

“It’s been amazing and exhausting. We’ve spent a lot of time speaking with people, educating them on crowdfunding and its purpose and finding useful synergy between corporates and the Charli Cohen brand.

Deasy-Smith adds: “It must be stressed that we are not a charity. We are a business, a luxury brand. A British brand putting something back into the country and the British fashion industry. I hope a lot of people use our experience as a benchmark for future projects.”

Future plans

Nervousness aside with target near yet so far, Cohen herself is keen to stress her very positive experience of crowdfunding to date: “I would definitely consider further crowdfunding campaigns for specific events in the future. With the lack of funding available within the creative industry, I think repeat crowdfunding is going to become increasingly common for each new project, show or season.

“As well as being a great source of funding, it is also a wonderful way to include and engage your customers in your business and develop customer loyalty.”

She adds: “It is my understanding that no two crowdfunding campaigns are the same, so whilst it has been an incredible learning curve, it’s perhaps been primarily about learning how best to approach this particular campaign.”

Next time, certainly if looking to raise a large sum, Cohen says she would look at getting SMEs on board first so the campaign had larger pledges ‘up its sleeve’ before its kick-off: “It’s very high pressure trying to organise that [SMEs] within the time constraints of a live project.”

Another big takeaway to date for Cohen is new ideas on how to promote on a daily basis. She reckons many of the strategies used for CC Effect will still be relevant or could be modified for a future campaign.

Growing crowdpower

Crowdfunding is experiencing phenomenal growth domestically and globally with the even the World Bank sitting up and taking note. The Bank’s recent report on its potential for the developing world cites the 2008 financial crisis (and attendant liquidity problems) as one of the main drivers for crowdfunding and specifically equity crowdfunding in the US. The report reveals that the US has 344 crowdfund investing platforms, leading the world in the number of active investment-based platforms. The UK is second with 87, and France is third with 53.

Certainly, hardly a day seems to pass without news of platform expansion. Only last week US-based Kickstarter, the biggest platform for rewards-based crowdfunding, opened for business in Australia and New Zealand. Earlier this year it launched operations in Canada. These 2013 openings follow the start of Kickstarter’s global expansion programme in 2012 with an official launch into the UK.

At home, the UK Crowfunding Association is seeing its membership increasing by about two platforms per month. It currently boasts 24 full members, and 9 affiliate platforms which are in the process of launching.

More broadly, UKCFA estimates that £2.5bn in total has been raised in the UK to date by the sector, including for donation-based crowdfunding. It estimates the industry is growing by 10-20% month-on-month, with the mature platforms seeing 5% growth month-on-month.

Commenting on the outlook for the UK sector, Julia Groves, UKCFA chair, reckons the immediate space to watch is rewards based crowdfunding, with platforms Indiegogo now setting up an office in Shoreditch, and JustGiving recently launching Yimby: “I think we will see some innovations on what those rewards are for crowdfunders: after all, if a lot of us pay up front for a product, and if the company does brilliantly as a result, I would be looking for a share in the profits too!”

More broadly, Groves notes that there are signs that corporates, even existing banks, are looking to move into the market: “That is perhaps an indication that crowdfunding is building credibility and becoming more mainstream, but I would hope it still remains democratic and a real solution for the 95% of us that don’t have access to finance and investment opportunities, not just another option for the 5% who do.”

Regulation matters

For Richard Brockbank, co-founder of platform InvestingZone, the key short-term issue facing the crowdfunding industry, and in particular platforms offering investment-based crowdfunding such as, is FCA regulation.  He says: “The proposed regime put forward by the FCA will make it difficult to include the broader public in early stage investing and will mean that these opportunities remain, for the most part, limited to those who are already wealthy.

“Assuming that a sensible and proportionate regulatory regime is established, then the UK’s crowdfunding industry can continue to push forward, but there are further challenges ahead. “

One of the key attractions of early stage equity investments for qualifying individuals is the related tax relief.  Brockbank says the Enterprise Initiative Scheme and, in particular, the Seed Enterprise Initiative Scheme EIS are very generous schemes which have come to play a vital role in encouraging investors to take risks and back small companies.

He worries, however, that EIS and SEIS, may fall foul of government tampering in the future:  “Governments come and go and priorities change, but if either of these incentives were to be weakened or even removed, it would surely dramatically reduce investors’ willingness to make these investments.  Clearly this would be a threat to the crowdfunding industry where businesses depend on investment through their platforms, but it would also greatly reduce the UK’s ability to fund its best and brightest prospects.”

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