Ever dreamt of being a Dragon on Dragons’ Den or investing in a business idea? Well now anyone can. Every day thousands of people around the world are investing in a range of different products, campaigns, causes and ideas through crowdsourced funding websites.
Many of these ‘crowdfunding’ sites, such as Kickstarter and Crowdfunder, focus on creative or social projects and are proving to be a game-changing mode of financial backing. One group that has particularly benefited is independent musicians. Music-loving investors are happy to help enable independent, up and coming artists they like to produce their music, often taking big record labels out of the equation and enabling listeners to connect directly with the artists.
UK-based Crowdcube, however, focuses solely on equity for new businesses and start-ups. Amounts as little as £10 can be invested, giving anyone a chance to participate. Last month Crowdcube released its first year profit growth report, demonstrating strong growth in 2011. Over £2,500,000 was invested throughout the year and the company set a world record in November as the first crowdsourcing website to raise £1million for bar operator The Rushmore Group.
There have been flutters of interest about crowdsourcing over the last couple of years but 2012 could well be the year that it actually goes big. A sure sign that it’s gaining mainstream importance and interest is the appointment of Jimmy Wales, co-founder of Wikipedia, as an advisor to the civil service in Whitehall. His role, as reported by Andrew Hough, will be to “help civil servants develop initiative new technology”. Involving ordinary people in government decisions fits nicely with the government’s Big Society programme and cuts agenda, but crowdsourcing’s biggest selling point is that is provides people with innovative business ideas the opportunity and platform to pitch to a wide range of potential investors. Ideas that would otherwise be ignored, rejected, or have failed in the past after following more conventional routes to sourcing investment.
Yet for every successfully funded project, there are a number that miss their target. Crowdcube’s report also shows that in its first year, for each project that succeeded, there were 13 that failed to achieve the necessary funding. A successful crowdsourcing pitch requires a good deal of groundwork to create the necessary buzz and maintain investor relationships post-pitch, and not everyone will make the mark.
Crowdsourcing will also not work for every business as having such a large number of investors can lead to friction if projects do not go to plan. For example, after reaching its initial funding target, Vere Sandals, a US start-up wanting to build a sandal factory in New York, faced some major setbacks and as a result has experienced a barrage of investor frustration as dates and targets were missed or pushed back.
The government keeps telling us that entrepreneurs SMEs are the lifeblood of the UK, but with little subsequent support, and banks less open to parting with cash in the tough economic climate, sites like Crowdcube are using the democracy of the web to offer an alternative way to get businesses off the ground. Could Crowdcube be the first step to making the government’s vision a reality?
Either way, facilitating entrepreneurs to engage directly with investors and minimise the risk factor of starting up from scratch is a positive thing and should hopefully ensure good ideas are never ignored and even little projects can make big ripples.