“Were crowdfunding. Invest in us!?
How many times have you heard that in the last 12 months
Equity crowdfunding in the UK doubled in size last year to 50m and I suspect it is only accelerating.
Its not just funding for equity either minibonds and crowdfunding for debt are the latest thing. Long gone are the days where the bank was your only option to help get your business off the ground. In fact the banks are becoming more marginalised with every passing day.
Even the US market, previously too tightly regulated to allow crowdfunding for shares, is about to jump on the bandwagon. There, the Jumpstart Our Business Startups (JOBS) Act will relax regulations and open up the market. It comes into effect imminently, so expect a tidal wave of change on the other side of the Atlantic.
In 2015, equity crowdfunding is worth taking seriously.
But how good an option is it for a startup wanting to raise money Speaking from personal experience as the CEO at Chirp, were coming to the end of a funding campaign on Crowdcube, so we are in the right place to reveal some up-to-the-minute insight.
A little bit of context
Chirp is a University College London spin-out that has developed an audio technology platform.
The platform means data can be exchanged between potentially billions of devices with a speaker or a microphone. You can think of Chirps sonic data protocol as an audible barcode . Launched initially as an application for sharing web links, pictures and texts, the Chirp app has been a top ranking consumer app around the world.
Why did we decide on crowdfunding
We did a lot of research into our funding options before deciding on the crowd. In simple terms though, it came down to four things:
1. Does our business have enough crowd appeal
The first signs of Chirps crowd appeal happened last year when schools started discovering that the Chirp app could improve the use of technology in the classroom. Teachers began to use our app to send class notes to pupils armed with iPads and iPhones. The word spread, a few teachers started blogging about our app and soon enough we were winning educational-tech awards we never even entered in!
Since then, weve moved the business on to provide a toolkit for business customers and developers to embed our technology into their applications. Chirp is now a B2B business. We knew that it is easier to get the crowd inspired with a direct-to-consumer business the reason crowd platforms are disproportionately full of startup drinks brands, consumer apps and artisan coffee shops. But we also knew that Chirp still has a consumer-friendly brand and fans around the world so we were confident the crowd appeal would still be there.
2. Its not about the money.
Actually, of course it is about the money. But not only the money.
Fundraising from the crowd gets your business in front of tens of thousands of people. We had lots of new products in the pipeline, due for release whilst we were fundraising.
If we had been fundraising with angels or VCs, we would have been locked away in meeting rooms full of lawyers for weeks.
With crowdfunding, all of our efforts to market our business to the crowd could help achieve our commercial and marketing goals as well as our financial goals.
3. Alternatives
We had already completed an angel funding round in 2014. This time we wanted to raise more money and we felt that we had outgrown the same angel funding approach.
We looked at VC investment but the typical response was that anyone who didnt have a million of recurring revenue (dollars or pounds, it didnt really seem to matter) was too early.
A lot has been talked about the barren zone between angel and VC funding, particularly in Europe where VCs take smaller bets than their American cousins. Thats the zone we found ourselves in but thats exactly the sweet spot for crowdfunding.
4. The clincher
We had virtually decided on crowdfunding anyway when we were introduced to the London Co-Investment Fund (LCIF). This is a new initiative from the Mayor of London Boris Johnson’s office, offering to match equity funding for innovative London-based digital businesses. One of its funding partners is Crowdcube, the UKs largest equity crowd-funding platform.
This partnership offered us the potential to start a crowdfunding campaign with 100,000 already in the pot enough of a head-start to give the crowd the confidence to follow their lead.
That was the dream, but continue reading on the next page for what the reality and determine whether crowdfunding could be the right choice for your business.
Image: Shutterstock
The reality was crowdfunding the right decision
Our campaign has been fantastic so far. We are getting great support from crowd investors and have already achieved our funding target. The publicity we have received from the campaign has also been incredibly valuable and we have seen an immediate benefit in terms of app downloads, customer leads and downloads of our software developer toolkits.
We also managed to secure the match-funding available from LCIF which was a huge boost to the start of our campaign.
So weve ticked off all the items on my should you crowdfund checklist. However, it hasnt all worked out quite as we imagined.
We certainly underestimated the amount of work involved running a crowd campaign.
Weve leveraged our own personal networks extremely hard and Id guess that almost half of our crowd investments have come from our extended network.
We were also lucky with some of our publicity. Google kindly launched a product in the same space as Chirp three weeks ago and we reacted quickly with some of the media that had already covered us to make sure we were mentioned in virtually every piece of news around Google Tone .
We didnt see that coming but Google unknowingly validated the space that we are competing for as well as telling a whole lot more people about what we do.
Commitments to our fundraising from existing investors have been fundamental to the success of our campaign. Without doing all the hard work to secure these before we started crowdfunding, the crowd would have waited too long for someone to take the lead.
But the biggest surprise throughout the last month has come from an area we had completely overlooked.
Crowd innovation
Opening up our business and our technology to the crowd seems to have lit a fuse and suddenly weve acquired the biggest team of innovators we could imagine you, the worldwide digital community, the crowd .
The excitement drummed up by our crowdfunding campaign and product releases has created a fantastic response from developers and potential customers asking if they can use our technology for a range of applications wider than we have ever considered.
Just a few of my favourites include: a Bitcoin transfer app; Chirping ice cream vans; electronic attendance certificates, endorsements and badges; a blind-date app; a means of downloading measurements from devices in remote areas without internet; time-setting for digital wall clocks; and sub-aqua drone sensing.
Some of these ideas are super-smart. Some are a little quirky. Some might turn into our next big scalable market opportunity. Others will no doubt go nowhere. I have my own opinions on which are which and maybe you have yours but the wonderful thing is that we dont have to choose. We can let the crowd take our technology and place every bet for us.
Ive done my time on MBA-style courses and there is a lot talked about Open Innovation improving innovation within a business and expanding the markets for a companys product by using knowledge flowing in and out of an organisation. But I think our situation is a bit different. The crowd seems to have taken on more than its fair share of our entire innovation function.
So why is this happening now” OK, we have quite a cool technology and it isnt difficult for people to imagine ideas for it. OK, awareness has increased thanks to some great press coverage recently not least thanks to Google entering the sonic data market with its Google Tone product.
But there is more to it than that.
By conducting a crowdfunding campaign, we have effectively made our entire business available for public examination. Our business plans, our valuation, our financials all there for anyone to see. We have opened up our doors at the same time we have opened up our technology.
This is more than open innovation. This is innovation from the crowd inspired by open business. The ability to deliver funding, awareness, customers and innovation all at once.
Thats truly the power of the crowd.
Richard Mann is CEO of Chirp. Chirp is currently fundraising on Crowdcube.
