Crowdfunding – Success or Failure?

First of all, congratulations to Sue Acton at Bubble & Balm.  Sue has successfully raised her full £75k target through Crowdcube.  It is a brilliant achievement.

To quote Crowdcube founder, Darren Westlake:

“In the current climate with banks being risk averse, we are thrilled that Bubble & Balm has succeeded in getting vital growth investment.”

Furthermore, Darren believes that this marks a

“significant moment in the history of small business finance in Britain”.

So a massive achievement for both Bubble & Balm and Crowdcube.

Or is it?

I’ve taken a moment to extract some numbers from the Crowdcube website and, to be honest, they don’t make pretty reading:

On the day that I ran the numbers – 24th July 2011 – there were nineteen pitches on the Crowdcube website.  Of these, I would only consider two of them to be a success.  The first being Bubble & Balm and the second being the Personal Development Bureau who have so far raised 43% of their target.

Looking at the remaining seventeen pitches, the average investment target is £86,765 and the average investment raised so far is £635 – 0.7% of the target – from an average of 9 investors – that is £57 from each investor.

Now, each company that attempts to raise money through Crowdcube has 180 days to reach its target.  The average age of the seventeen pitches is 123 days.  So, they have taken 68% of the allowed time to raise 0.7% of the target funding.

Going into more detail; twelve of the seventeen have not even reached 1% yet.  Furthermore, the five oldest of the seventeen – all of which are more than 90% of the way through their allotted time – have raised a total of £6,920 out of a combined target of 280k, which is an achievement of 2.5%

Of the five oldest – who have raised £6,920 – one pitch has raised £4,570 and another has reached £1,450.  So out of the seventeen, fifteen have not yet achieved £1,000 in funding.

So what does this tell us?

Is this saying that crowdfunding doesn’t work?

Or is it saying that nine-out-of-ten start-ups are based on ideas and business models that just don’t stack up?

Do start-ups need more financial support or do they need more reality checks?

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About Adrian Fowles

Business advisor, finance mentor and cash coach - Turning your pipe dream into a revenue stream - http://acf-associates.com/
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8 Responses to Crowdfunding – Success or Failure?

  1. There are other sources of financing other than crowdfunding. Invoice auctioning might be something that businesses might want to look into. It is basically an online platform where businesses can sell their invoices online through an auction, where investors competitively bid against each other to advance cash to the invoice with the highest advance rate and lowest discount fees.

    Marketinvoice is the pioneer of this system in the UK. To be on top of your company’s finance, please try out our Auction Calculator to see how much cash your bushiness can get in advance. http://www.marketinvoice.com/about-marketinvoice/how-it-works/auction-calculator/

  2. Good post. Surely distinction between crowd-funding seed equity and other types of financial asset? This is despite the vast amount of PR that Crowdcube have had. Marketinvoice has done £750k of volume, although I would categorise this as on-demand asset based finance rather than crowd funding.

  3. klm says:

    Crowdcube has not achieved a critical mass of investors so far. Normally the companies should attract at least friends and family to this plattform. second problem is, that they does not seem to have attracted semi professional investors so far who are able to invest up to 10.000 Pounds. As soon as these two milestones are achieved, the whole think will take off.

    • It would be great if Crowdcube does take off. However, if it’s success is dependent on attracting a small number of more wealthy investors, doesn’t that contradict the whole crowdfunding concept? In effect, it becomes a kind of Angel Investor Network.

      Maybe the semi-professional investors are already there – in the background – but have yet to see a pitch that they consider to be a sound investment?

  4. Lorraine A says:

    Hi Adrian,
    I thought this was an interesting post raising some important issues about using CrowdFunding to raise investment for start-up/growth business. It would be interesting to see a response from CrowdCube but in the meantime here are my thoughts…

    Like you, I heartily congratulate Bubble & Balm on their achievement – mind you, I don’t envy them that number of external investors, I had a hard enough time with my 3 in a previous company I owned!

    I don’t believe that the figures you have given indicate Crowdfunding isn’t working – there are plenty of other examples such as WeFund which clearly show there is an appetite to both use this approach to raise funds and make an investment. I do, however, think you may have a point about whether the businesses currently featured on CrowdCube are really making themselves as attractive as they could be.

    Some of the pointers the site gives to businesses using the platform include ensuring they have a good business plan, that they have realistic and achievale targets, and to spread the word. I wonder how many of the people behind the businesses have actually had professional support in putting the business plan together and setting targets? If I were investing then that is one of the first things I would be scrutinising. The other issue is about ‘spreading the word’. It’s a bit like the whole web site thing – get the site developed, launch, then sit back and wait for the ££’s to roll in. In the real world of course the hard work starts post-launch and in the same way the real work starts once you’ve posted your pitch up there and I know from the Bubble & Balm experience they put a huge amount of effort in to promotional opportunities to get their name known. If you look at Bubble & Balm’s profile they were already an established brand over a year ago when their products started to appear in Waitrose stores in the UK. Investing in them may seem like a bit less of a ‘punt’ perhaps than some of the others.

    There are very few businesses currently on there that really strike out at me in terms of their pitch and I wonder how much of that is simply that they have very little experience and/or skills in pitching (real or virtual) and how much is that their business model is not as strong as it could be (reference back to the business planning comment). I’m not sure that CrowdCube is setting itself up for more professional investors – my understanding is investors are likely to be friends, families, customers, suppliers and so on – quite a different kettle of fish to your average business investor.

    My own site at Speed Mentor covers a lot of issues about raising equity finance for business, from seed funding through to crowdfunding and venture capital. One of the down sides that we highlight of CrowdFunding is that you have to expose your business idea before you may be ready to in order to gain investment. It is possible that there are some fantastic new start-ups/growth companies out there who would really benefit from this investment approach but are put off by the exposure their idea will have as well as of course having to wait anything up to 180 days to know whether they reach their target or not and only then can they start the development work. Having said that of course perhaps it is just exactly this which attracts the businesses featured on there to ‘have a punt’ themselves to see whether their idea is a runner or not.

    Lots to think about there. Very interested to hear other views and of course a response from CrowdCube.

    • Thanks for your terrific input, Lorraine, you raise some interesting points.

      The success of Bubble & Balm does serve to remind us of one of the home truths of being and entrepreneur – it is very hard work. Sue Acton put in a massive and continuous effort to drive her fundraising campaign. This kind of effort is part-and-parcel of running a business and an essential part of being a success. Unfortunately this kind of effort also appears to be lacking in the other businesses on Crowdcube.

      For me, one of the major issues I have with Crowdcube is that ‘banker bashing’ paid such a major part in its own launch pitch. They jumped on the populist ‘the banks should be lending more’ bandwagon and used it as a basis to promote themselves as a viable alternative.

      They were going to show the world how the banks were incorrectly turning down perfectly viable businesses.

      However, six months later I find myself looking at the quality of the pitches on Crowdcube and, quite frankly, I’m appalled. The vast majority contain numbers that don’t add up, impossibly over-optimistic business models, and all pulled together by delusional would-be entrepreneurs.

      If these pitches are representative of pitches that have been rejected by the banks then the banks were right.

  5. Hello all,
    Interesting debate. Some quick thoughts from me….
    First of all I’m convinced that crowdfunding for equity does work and will play a big part in financing businesses in future (of course I would say that!). We’ve proved the concept now with Bubble & Balm. However its still in its complete infancy and we’ve got a lot to learn about how to make it work better and how to push the right buttons to get people to invest.
    The best way to do this is to provide potential investors with quality propositions to invest in and I’d admit that at the moment we’re not getting enough of those through the door. That is our focus at the moment and its not an easy task but we’re in the process of striking up some great partnerships with organisations that will be referring businesses through to us. It takes time to build up a network that will get you quality dealflow as established VC’s and angel networks will tell you.

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