There has been a lot of talk about the decline of the VC ‘industry’ in Europe and the US recently and the vast plethora of options that have opened up for entrepreneurs from crowd-funded sites like KickStarter that offer people the chance to purchase goods in advance to crowd funded equity sites like Seedrs in the UK and the vast array of US startups that have been enabled by the passing of the JOBS Act.
Some companies will always value venture funding from top quartile investors, not just for the money, but for the significant value that having such a firm on your side brings – both in terms of a network of useful people and in terms of the message such funding sends to the market. There is a huge difference between funding something on KickStarter, where you are doing the funding because you like the idea and want the product and ‘investing’ in a company for a return. Given the current, ahem, frothiness in the market, it is highly likely that some people will be investing in what they believe will be the next Facebook with no realistic understanding of the risks involved. Caveat emptor and all that though this is an interesting post on the Great crowd funding train wreck of 2013. Makes some good points.
Another alternative form of fundraising a few companies are looking at is a bond issue. A bond offers a company the opportunity to raise money without selling equity, you are offered interest on a loan for a fixed term at the end of which you get your money back. Clearly, this is not a very viable option for a startup company – there is no way you can have any visibility on their ability to have the cash at the end of the term, but for a more established company looking for growth capital, it seems to be an increasingly common option.
I caught up with Ed Orr, co-founder and Chairman of Mr & Mrs Smith at an excellent networking event held by Scottish Equity Partners recently and here he explains the thinking behind the bond that they have just offered to their members. It promises to pay a fixed interest rate of 7.5% in cash, or 9.5% in Mr & Mrs Smith tokens over a four year term. Bond issues are still subject to FSA regulation.
Broadly, the alternative options for them would be venture funding which would cost significant equity, an AIM listing – costing both equity and huge advisory fees (Ed used to be a broker so he knows the drill!), or a partial sale of the business. All of these options would mean there was less control in the new entity for the founders, higher advisory fees and potentially significant management time involved in managing the process.
For relatively stable companies with predictable cash flows, bonds may become increasingly common as a form of financing growth.
Our next BLN CEO Tales in London on 31st May with Ken Segall is proving exceedingly popular. Not only is Ken sharing one of the few ‘insider’s views’ on why Apple has been the phenomenal success over the past 15 years, his book, ‘Insanely Simple, the obsession that drives Apple’s success‘, has just hit the New York Times bestseller list with some rave reviews.
Ken will talk about his experiences at Apple as well what that means for any technology business trying to emulate their success. You would be simply insane to miss it. More info…
[subscribe2]
Crowdfunding, inspired by cnuodsworcirg, describes the collective cooperation, attention and trust by people who network and pool their money together, usually via the Internet, in order to support efforts initiated by other people or organizations. Crowdfunding occurs for any variety of purposes, from disaster relief to citizen journalism to artists seeking support from fans, to political campaigns.OverviewCrowd funding can replace the need for specialized grant applications or other more formal and traditional fund raising techniques with that of a more casual, yet powerful, approach based on crowd participation. Examples of the basis of Crowd funding can be seen in Cooperatives (co-ops) around the world. However, the Internet can provide new streamlined approaches to quickly imitating the co-op model for low-level and/or sudden needs (i.e. disaster relief, travel expenses, legal fees and so on.). It is this reason that a term be used to encompass the act of informally generating and distributing funds, usually online, by groups of people for specific social, personal, entertainment or other purposes.Crowd funding, like Crowd sourcing, is very much related to online communities and social networks. The crowd can already exist as a community but they can also suddenly form from disparate groups around the world who all happen to share an interest in funding a person, project, event, campaign etcetera. The Internet allows for information to flow around the world, increasing awareness. A Crowd funded network can assemble and disassemble at any time. This is the primary difference to traditional co-ops.Influence of the crowd is another factor. Crowd psychology sometimes can play a part in the success or failure of crowd funding efforts. Likewise, forms of Reciprocity (cultural anthropology) is related to the mindset of people who participate in crowd funding efforts.ஜ ♥ Inez/Inescia ♥ ஜ