Crowdfunding – How Social Media is helping businesses to get funding 2

I read with interest in the August edition of Accountancy Magazine (article by Guy Rigby) how Crowdfunding is gaining popularity, here are some examples:

  • In 1997 British rock group, Marillion, raised £38,000 from its fans to pay for its US tour. They then went on to use the same method to fund several albums
  • In 2010 Hotel Chocolat offered 3 year, FSA approved ‘chocolate bonds’ to its 100,000 tasting club members. Customers were invited to invest £2,000 for a gross annual return of 6.72%, or £4,000 for a return of 7.29% which were paid in regular deliveries of chocolate. The Bonds raised an incredible £3.7m for the company.
  • In 2011 Caxtonfx (foreign exchange) raised £4m from its bond issue
  • In 2012 Mr & Mrs Smith (travel website) are in the process of raising £4m from a 4 year bond with cash interest of 7.5%, or 9.5% if the ‘Smith loyalty money’ option is taken
  • In 2012 Pebble Technology, a Palo Alto based smart watch company used Kickstarter.com to raise $10m against forward sales of its Pebble watch

According to the article, quoting Simon Dixon, to be successful in crowdfunding there is a simple formula £££ = R + SC + E

Where the money raised depend on the strength of the rewards your offer (R), how much social capital you have (SC) and the emotion attached to your story (E)

Its early days, but could this be the future for some businesses, using their fans and contacts to access funding. Social Media and the internet are definitely playing a part in moving this forward.

steve@bicknells.net