Crowdfunding your business

April 28, 2010
 
The British Library’s Business & IP Centre is a superb resource for start-ups and established businesses alike. Last night I attended a seminar on Crowdfunding, looking at raising capital from multiple investors as an alternative to traditional routes from a handful of   angels or VCs.
Charles Armstrong of Trampoline Systems

Charles Armstrong of Trampoline Systems

Crowd-anything is a hot topic, and there are a myriad of crowd based alternatives to problems and their traditional solutions:    

  • Lending: Zopa
  • Mutual funds: cutefund
  • Startup capital: GrowVC
  • Contact data: Jigsaw
  • Encyclopaedia: Wikipedia
Embracing the crowd model to fund your business seems to make sense. Everyone knows that access to both debt and equity funding is much more difficult now than it was two years ago. Crowdfunding may fill a gap in the market, between seed funding when you are just setting up and growth capital from VCs which you will need to have a well developed product and revenue stream to justify. The sweet spot is probably from a few hundred thousand to a few million. The logic is simple, don’t rely on just a few limited sources for funding, but tap into investors world-wide. Avoid selling your soul to a VC when you can retain more control by having a greater number of smaller investors, and deal with them on your terms, not theirs. One class of share for everyone, no liquidation preference, no double dip, no ratchets and no more one-sided term sheets.
 
So why is everyone not doing it?

Charles Armstrong, CEO of London-based Trampoline Systems is a trailblazer who found that whilst the rules and regulations are dense and strict there are numerous grey areas, and these grey areas allow room for some innovation. Trampoline is close to raising £1 million in less than a year, so the approach has worked for them. Financial regulations are extremely strict about companies promoting investment opportunities, presumably to protect the individual from a plethora of get-rich-quick schemes which would otherwise appear. (I don’t see why this is so strictly controlled when it’s possible to gamble or borrow your way to massive financial problems).
 
It is illegal for private companies to promote investment opportunities in public. Trampoline’s solution: set up a website in isolation to promote interest in crowdfunding (but not directly promote Trampoline).
 
It is illegal for companies to discuss investment opportunities, to anyone who is not a sophisticated investor, high net worth individual or your friend or family.  Trampoline’s solution: get people to self-certify they fall into one of these two investor categories on the Trampoline website before they are able to access anything further.
 
It is illegal for companies to send your business plan to more than 99 individuals. Trampoline’s solution: those people who made it into the restricted area of the website were given some additional information, for example, the minimum investment was £10,000, and they then had to get in touch by email and specifically request the business plan.
To be as fair to all potential investors as possible everyone investing was offered shares at the same price, on the same terms (BVCA approved articles) and given access to the same documents for due diligence (after signing a confidentiality agreement). I love this open and fair approach, but do wonder whether the addition of a lot of extra shareholders on such agreeable terms may limit your funding options for the future, and would turn off VCs.
 
 
Another perspective came from David Smuts of Elexu, who is instead incorporating as a public limited company, rather than a private limited company.  Elexu aims to raise millions and give equity stakes to far more than the 100 person limit imposed on private companies. It is a myth that PLCs must be listed on an exchange, and the additional governance and legal requirements are only slightly more onerous than for a private limited company. The main drawback is that no matter the size of your PLC you must file full accounts with Companies House, including a profit & loss, not just an abbreviated balance sheet which is sufficient for most small private companies . Despite the extra cost and effort of being a PLC a small number of people choose to incorporate this way for no other reason than the perceived prestige.
 
The third speaker was Tony Watts of Keystone Law, who terrified and confused the audience with the severe penalties (both civil and criminal) for getting any of this wrong. Anyone looking to crowdfund will need specialist legal advice, and for that reason I’ve chosen not to repeat any of Tony’s specific advice here, I believe in this instance a little knowledge is a dangerous thing. Make sure you find one of the handful of law firms experienced in this and listen to David Smuts advice, “don’t pay your lawyer to learn this stuff at your expense”.
 
- – -
 
Subscribe to receive future blog posts by email, just enter your email address in the box at the top of the right hand column.

     


The Entrepreneurial Exchange conference 2010

April 24, 2010

For the last couple of years I have been a member of a fantastic Scottish entrepreneurial network, The Entrepreneurial Exchange, which helps entrepreneurs build companies of scale in Scotland. I have had the pleasure of serving on the board since April 2009, and I hope that in particular I represent the views of younger and newer members.

Every year we hold our annual conference, at Scotland’s best hotel, indeed, one of the best in the world: The Gleneagles. As I set off towards Gleneagles I know that I’m going to meet and hear from some of Scotland’s and the world’s best entrepreneurs. Even arriving at this impressive building, in the middle of the beautiful Scottish countryside is inspirational in itself.

This year, there was a small but determined bunch of people using Twitter to send updates out from the conference. Tweets ended up being read and retweeted by people in UAE, Portugal, Cayman Islands, Canada, France and the US! I was highly tickled that one piece of advice, from Bill Cullen, a 69 year old veteran of the car industry was picked up and retweeted by friends of mine working on web start-ups in Silicon Valley and London. The advice was, “Do it fast. Start something now and then change and improve as you go. Just start now,” and is as applicable to lean web start-ups as traditional offline businesses.

Here are some of the other gems of advice from this year’s conference:

Bill Cullen (Ireland’s answer to Alan Sugar and Donald Trump on “The Apprentice”):

“Your future doesn’t just happen, you create it.”

Keys to success: positive attitude, plan of actions, being an expert, value people, energy, exercise, smile.

“The sun is always shining, we can’t see it, but it’s always there.”

Dermot Jenkinson, founder and chairman, beCogent:

“Bullshit might get you to the top, but it won’t keep you there.”

“We review every quarter what we’re doing in the business & make sure we’ve not started doing anything stupid.”

“Small unexpected gestures make a real difference with your employees.”

John McGuire, founder and managing director, Phoenix Car Company:

“What we look for when recruiting: Energy, Excitement, Enthusiasm, Intensity”. [John still interviews everyone at the company, despite having over 500 employees now].

“If you find something you love, and get someone to pay you to do it, you’ll never “work” another day in your life.”

On the recession and redundancies… “the important thing to me was just to get through the recession with as many of our people as possible.”

Lara Morgan, founder, Pacific Direct:

Plan your exit 2 to 3 years in advance. Ask your accountant for a due diligence checklist and start planning now.

Design a reward system that is well aligned with the company’s goals. And then remove barriers to success

Traffic lights on reports (red, green, amber) are a great way to quickly get to the point on reports, etc. [This idea was introduced to the Ford motor company by CEO Alan Mulally]

Remember Pareto…. Sack the useless 20% of your customers [More entrepreneurs need to actually do this & not just nod in agreement].

Big mistake: “not giving equity to key staff earlier in the game”

“Choose the life you wish to lead, plan it, and make it happen”.

Rosaleen Blair, founder and CEO, Alexander Mann Solutions

Best way to get new sales is to show and tell… “let other customers tell your story to new prospects”

“When opening overseas. Understand the culture. e.g. in Poland people are really keen to learn and develop so we offer courses and qualifications. Fulfill their needs.”

“2009 was my biggest year for learning in business” [It was for me and many of the other delegates I spoke to. Recession gets you to focus and understand like never before].

More about The Entrepreneurial Exchange:

The Entrepreneurial Exchange has a model which works, it’s an organisation “by entrepreneurs and for entrepreneurs”. Its members are business owners only, and support and learn from each other. We have businesses turning over less than a million, a few that turn over in excess of one billion, and everything else in between.

The Entrepreneurial Exchange is shortly opening in London, and there is a similar organisation in the North East of England, the Entrepreneurs’ Forum.


Start-up offices in London: a tour of TalkTalk in Soho

April 19, 2010

image

This morning I was shown round the former Tiscali HQ by the general manager of the building, Maggie Roxburgh. I’d first found about this from Channel 4’s technology correspondent, and former dot com whizz kid, Benjamin Cohen; the timing couldn’t be better as my new venture needs office space in London.

It’s on the corner of Berwick Street and Broadwick Street and the 7 storey building has now been turned into TalkTalk‘s first retail store, on the ground floor; a customer lounge, on the first floor; and flexible shared office accommodation for technology start-ups, on the floors above.

There is room for about 150 desks, 36 per floor. Each desk costs £450 per month inclusive of rent, rates, security, broadband and use of meeting rooms.

Each floor has a lounge and kitchen area, and a large and small boardroom available free of charge to tenants. Additionally on the 6th floor there are extra meeting rooms, available to hire at cost. 300Mbps wireless broadband is included for all tenants though for wired connectivity you have to pay extra.

It’s been fitted out to a really high standard and it’s right in the heart of Soho, but you are paying a premium for that, and while you gain from being in the heart of the city the downside is that you’re further from the bulk of tech start-ups in Shoreditch and Silicon Roundabout.

There are other options, notably TechHub, of which I am a founder member. TechHub will add value by hosting a series of events for the tech community as well as providing casual desk hire for the day and permanent desks on a monthly hire too, but it’s very welcome to have another option. Having toured Plug & Play Tech Center in silicon valley I do think bigger is better, and while I’m realising that London is a great place for a start-up, by spreading everything out across the city there is a dilution of impact which doesn’t occur in silicon valley.

TalkTalk could have just put this building on the market as a whole and are to be congratulated for coming up with an innovative use for this building, one which hopefully makes a positive contribution to London’s tech scene.

Address: 20 Broadwick Street, London, W1F 8HT

Other options:

If you just want somewhere to go temporarily instead of working at home or in Starbucks try the British Library Business and IP Centre.
 
More photos of TalkTalk:

Typical office layout with 36 desks per floor:

image

Small meeting room, and lounge area on each floor:

image

Additional larger meeting rooms on the 6th floor:

image

Ground floor:

image


Follow

Get every new post delivered to your Inbox.

Join 85 other followers