Spotlight on Crowdfunding
There has been a surge in crowdfunding in the UK and Europe. From 2012 – 2013 crowdfunding grew 618% as a way of raising money for a new project.
This surge is partly thanks the development of entrepreneurship across Europe over the last few years. The creative and digital sectors have traditionally reaped the rewards of this method of financing new ideas. More recently however, the health and social care sectors have been successful in crowdfunding individuals and new projects.
One of the big crowdfunding success stories of recent months is that of BrewDog, the craft beer company based in Aberdeenshire who recently secured £4.25 million investment from a crowd of more than 8,124 financial backers. This was the third round of funding under the ‘Equity for Punks’ campaign which, in total, has secured around £7million for the company and allowed investors all over the world to hold shares in the business. Known for doing things a bit differently, BrewDog publicised the campaign by driving a tank through the streets of London.
BrewDog’s ‘Equity for Punks’ campaign followed the ‘investor’ crowdfunding model which grants funders equity in reward for pledging money. Not all crowdfunding campaigns follow this model; there are four main contexts where individuals opt to fund a project:
- Charity –funders expect no direct return for their donations.
- Lending – funds are pledged as a loan and a rate of return is expected from this investment.
- Reward based – funders receive a reward for backing a project. This could be their name credited as a backer, the option of pre-buying the product or service before it goes on general sale or an exclusive or limited edition product or service.
- Investor – giving funders equity in reward for pledging money.
Fund Manager, Nicola Horlick also followed the Investor model to raise capital for her new venture, Glentham Capital, a £66million startup fund management company who finance independent films, they raised £150,000 in just 22 hours.
Before crowdfunding was recognised as a finance alternative, Glentham Capital would have raised the money required from a small number of wealthy investors. By using a crowd of funders, 136 in this instance some of whom pledged as little as £10, Horlick’s campaign achieved the fastest ever rate of funding using the Seedrs platform.
Analysis of the research shows that over half of crowdfunding campaigns come from entrepreneurs and around a third are from structured companies. Only 10% come from non-profit organisations, which is surprising considering the emotional link many of us have to particular charities or causes.
Despite this success of crowdfunding being widely reported in the media as a success story, more than half of all crowdfunding campaigns fail to reach their funding goal. This might be because of unrealistic targets or not enough effort being put into the promotion of the campaign. Despite not reaching the initial monetary target, many organisations have highlighted the value of using crowdfunding for market testing a product or idea and as a way of engaging with a new audience or an existing audience in a new way.
If you are interested in this topic, our event Nesta Spotlight on Crowdfunding will focus on the latest trends in Crowdfunding and as well as the differences between successful and unsuccessful campaigns.
This event will be held at the Hub in Edinburgh on the 2nd May. Tickets are free but places are limited so please register in advance – here.
Nesta Spotlight on Crowdfunding speakers include:
- Nicola Horlick, Glentham Capital
- Neil Simpson, Brew Dog
- Rachel Brown, Impact Arts
- Tim Wright, Twintangibles
- Liam Collins, Nesta