Crowdsourcing for startup success

crown sourceIf banks aren’t an option, peer-to-peer investment could offer an attractive avenue for would-be entrepreneurs looking to bring a new idea to market

Widespread job cuts and stricter banking terms have driven aspiring entrepreneurs into the arms of online investment communities in recent months, to the point that crowdfunding has become a mainstream means of accessing money for anyone with a great idea.

Of course it’s not quite as easy as that, but compared to established channels for raising finance, it is repeatedly proving to be a more viable model – certainly for more left-field ventures.

Crowdfunding is a peer-to-peer investment model, typically orchestrated online, where people are invited to put up a very small amount of money (as little as £10 if they like) to help realise an inventor’s dream. The typical scenario, a bit like on Dragons’ Den, is that unless a candidate attracts 100% of the amount needed within the designated time period, they walk away with nothing. The phenomenon has become so popular that the FCA, the financial services industry regulator, has begun introducing controls to protect private investors.

There are no guarantees for those trying to raise the finance, but at least those testing an idea are able to get a foot through the door. And when the money comes, it can flow. Kickstarter, one of the biggest crowdsourcing platforms internationally, has brokered investment pledges exceeding $1 billion since it was founded five years ago.

Edinburgh-based Ryan O’Rorke recently generated more than £150,000 in funding via the Angel’s Den crowdfunding platform. His business,Flavourly, delivers gourmet food (Flavour Boxes) and niche beer on a monthly subscription model. The business became one of the fastest ever to be equity crowdfunded in the UK, reaching its target within 24 hours of appealing to investors. The young startup business is now taking up a stretch-funding option to use surplus funds to drive sales.

Angel’s Den’s crowdfunding platform represents a pool of 6,000 business angels with funds to invest. It was a route O’Rorke only tried this year, having started up with £500 of his own money, winnings from a Scottish business competition, and some seed funding from two private investors.

Flavourly’s ambitions are far from modest. By the end of 2013, after only six months in business, the company had achieved sales of £170,000. With the crowdfunding, O’Rorke hopes to tip £1m in sales within the next few months, and have 10,000 active subscribers by the end of this year.

“2014 is supposed to be the year for crowdfunding, and it’s a good option,” O’Rorke says. “I can’t think of any reason not to go down this route. We chose Angel’s Den because of the Scottish connection and they’re very professional. By going down the crowd route we’ve gained access to a pool of 12 investors who together bring financial, marketing and customer acquisition skills to the table. For a young company like ours, that’s invaluable.”

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