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Crowdfunding

which does not want to give away equity”) and equity offers, which work best for exciting start-ups or growth business with the potential for large returns. Of course crowdfunding as a concept is not new. “Crowdfunding is community fundraising - which is as old as people needing money and asking people they know for gifts or investment,” says Strachan. “The base of the Statue of Liberty was crowdfunded. Barrack Obama was said to be the first crowdfunded president when the majority of his donors were from middle and low-income families - rather than the super-rich. “But the model we know now first came with the interactivity of the internet allowing for wide social networking, cash transfers online and the posting of videos”, says Strachan. Indie GoGo is thought to be the oldest platform (2007) with Kick-starter the second oldest and now the biggest (2009) but in the last two years there has been a huge surge in the number of platforms. Indeed, according to charity Nesta the number of crowdfunding platforms operating in the UK rose by over 50% in 2013. Of course crowdfunding does not only take place in the digital world. In Liverpool a project to turn two flyover structures into a pedestrian and cycle-friendly ‘promenade in the sky’ has been funded through seeking donations and pledges from the community. “It was really important to us that The Flyover is a community led project and that community is bigger than the three of us who started it off, so going to 'the crowd' was the natural choice,” explains Kate Stewart of Friends of the Flyover. “We also wanted to demonstrate to both the council and to the public in general that we recognise times are different now and that projects like this can only be achieved in partnership; we simply can't expect the local authority to fund things on their own anymore. “I've pledged to a number of projects recently, one was a public space project in Detroit, one a new LP and another was a technology start-up when I wanted to be one of the first to purchase the product, so I know personally that it’s a great way to feel involved in something.” The project was launched by Stewart, founder of retailer Made-here, Mark Bennett, director of mbed Architects and Steve Threlfall, creative director of Different, in January 2014. “About half of the funding came from us approaching businesses or making applications to their publicised funding rounds (some of this was donations in kind) and the rest simply came from 'the crowd' as the public responded to the many press and media features as well as our own online campaigns through social media,” says Stewart. But raising thousands of pounds from financial backers is not easy. More than anything else it takes time and dedication. “As we have been running this project on a voluntary basis, the volume of conversations has sometimes been hard to keep up with - especially on social media and email - but this is a good problem

Crowdfunding is an interesting concept and, whilst by no means new, is something that growing in popularity

People crowdfund charitable projects, films and theatre, business start-ups and growth

to have as it shows the depth of feeling that people have for the project,” says Stewart. “As we are moving forward now, post crowdfunding, it has enabled us to broaden our team and this will mean we can maintain our pace of work and move forward quickly. “We were right to do it too as the results show not just that we reached our target, but that the process of the crowdfunding enabled people to express their love for the project and to feel like they had joined a cause.” Projects like this show that alternative forms of finance like crowdfunding can be successful but can it really offer a viable solution to the dearth in bank funding? “It can and does,” says Strachan. “Banks are not lending to small businesses and there are people who are looking for a good return on their money. If the product is right and the story well told then start-ups and creative businesses could raise funds and pre-sell products through the donations/rewards model. Chagford Community Farm raised £15,685 from 226 backers on Crowdfunder. Bonnie Bling Jewellery raised over £8,000 on Bloom VC to buy specialist equipment.” However, John Barker, partner at commercial agent Hitchcock Wright & Partners, says the type of sector the business or project is based in has an impact on whether or not such funding vehicles can work. “Crowdfunding is an interesting concept and, whilst by no means new, is something that is growing in popularity,” he says. “I’ve no doubt this is a result of banks clamping down on their commercial lending leaving businesses with very little choice other than to try and raise the funds themselves. However I do believe that this type of initiative is more suited to certain sectors than others.” Barker says many of the big success stories of crowdfunding have involved creative industries – an area where it is easier to get public support. “For SMEs struggling to secure funding for premises, for example, I suspect it would be a bit more difficult as complexities surrounding Tenure and Liquidity of assets make multi-ownership unattractive,” he says. “Short-term commitments are catered for by flexible lease terms so perhaps crowdfunding as part of their investment in the SME could fund the rent.” Continuous calls for the government to encourage banks to lend more money to businesses resulted in the Funding for Lending Scheme, which was created in July 2012 and offered banks access to cheaper funding if they upped their commercial lending. However there are many in the business world who will argue it wasn’t as effective as one might have hoped. “More certainly needs to be done to encourage banks to lend to businesses,” says Barker. “One possible solution could be for the government to ‘guarantee’ business loans in the way they guarantee mortgages as part of the Help to Buy scheme. This would give banks the reassurance they need to lend and businesses the funds they need to grow.”

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