The companies benefiting from the crowdfunding buzz

The companies benefiting from the crowdfunding buzz

It has been a tiring start to 2019 for Joe and Sadie Sillett. The couple have been working round the clock to prepare for a fundraising that will propel the expansion of their household appliances brand.

“It’s hard work, but we’re very excited,” says Joe. 

They’re hoping to raise £250,000 via Seedrs, having already persuaded 160 people on the crowdfunding website to put up £330,000 for a 37pc stake so that they could launch the Funky Iron Company last year. They hope to bring another 300 people on board in the latest campaign this quarter.

“It offers more than just money,” says Sadie. The company’s “army of supporters” have so far provided product feedback and free word-of-mouth marketing, she points out. One investor who was experienced in consumer electronics was invited to join the management team and brought “invaluable” expertise.

Fledgling businesses are turning to crowdfunding in huge numbers. The practice surpassed bank finance to become entrepreneurs’ second-most favoured method of raising funds, behind venture capital, and one in five is considering it as their principal source of finance within the next 12 months, according to EY. 

Generally speaking, there are two types of crowdfunding: donations, and debt or equity. The former enables companies to raise money from financial contributions that are often rewarded by low-cost items, such as a branded T-shirt or limited-edition product. The latter, which is more popular in the UK, depends on contributions that are paid back with interest or take a small stake in the business in return.

Crowdfunding is regulated by the Financial Conduct Authority and brokered by firms such as Crowdcube, Funding Circle, Kickstarter and Indiegogo.

Jim Rhodes, of Those, has used both forms. The design-studio founder raised £560,000 via separate equity and rewards-based campaigns to bring his invention – Joto – to market. It’s a connected wall display that users can post sketches and notes to via an app.

“The biggest advantage was being able to finance a product that might struggle via conventional routes,” he explains. “Joto doesn’t solve an obvious problem and therefore isn’t easily articulated in terms of an addressable market size, which traditional investors look for.”

He benefited from the wisdom of investors. “Our product was in prototype during our first campaign and the insight that we got from backers enabled us to shape and prioritise particular features, such as a refillable ink system.”

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