Funding (part 5)

Hello people! Missed me? I know you did not, but thanks for nodding!

We are now trotting along the “golden trail of Funding” and are breaking apart from beloved Credit Cards + Donations to (*…drumming…*) CROWDFUNDING AND INVESTORS!

Let us crack on:

Crowdfunding

The feature has entered the market back in the centuries. Yeah! I am serious. It is being posted as new and innovative but people have paid for their ideas with other people money since the set-up of currency.

My philosophical thinking and passion for the history of Mankind helped me to assume that Many of us living in the UK would know about Sharia Law and its influence on the rules of conduct of Islamic Economics and how it prevents Muslim people from taking out certain type of the loans but in the early days of Crowdfunding originations in Arab world back in 2005 onwards (2011-12-13), and its emergence in the form we know it today in Europe, might be an echo to the days of Ottoman Empire of the 14th Century onwards.  I am not going to go into it and attempt opening the philosophical debate to avoid starting a World War III or a religious conflict but the core of the Crowdfunding idea has existed in the world for many-many-many years, even in the countries ruled by strict religious laws.

Why have I said all that? Because I see Crowdfunding as one of the softest and cuddliest forms of public loan. (I know there will be people disagreeing with me, but….hey-ho!)

What is it? (REF: “Crowdfunding and Islamic Finance: A Good Match?” Tamer Taha and Inmaculada Macias F. M. Albani et al. (eds.), Social Impact Finance © Palgrave Macmillan, a division of Macmillan Publishers Limited 2014)

  • Crowdfunding is a type of crowdsourcing, which can be defined as a participative online activity in which an individual, institution, Social Impact Finance non-profit organization, or company proposes to a group of individuals of varying knowledge, heterogeneity and number, via a flexible open call, the voluntary undertaking of a task which entails mutual benefit.
  • The crowd participates by bringing work, money, knowledge and/or experience. Crowdfunding is the application of this concept to the collection of funds through small- to medium-size contributions from a crowd in order to finance a particular project or venture, offering small businesses and entrepreneurs a chance at success.
  • Typically, the most successful projects receive about 25–40 per cent of their revenue from their first, second and third degree of connections, which can include friends, family or acquaintances.

 

It is now widely used across the Globe and according to the latest statistics available the revenue of Global Crowdfunding is hitting WHOOPING $34.398.700.000 BILLION dollars (£26.204.929.660 billion *I know GBP strength sucks atm*)

Crowdfunding Worldwide

You can see the sheer volume of Crowdfunding Revenue, made possible through a tremendous number of successful projects and bids for funding.
Pros / Positives
  • If you manage the project right and skilfully advertise it through social media, family, and friends you can raise the needed finance in a quick and painless manner. No start-up fees involved in the opening of the bid and you can do it without investing in advertising if you are confident in popularity and the good purpose of your project.
  • Whilst bidding for funding through social media you are automatically raising awareness of the product or a service you are offering. Your project will be presented in it’s best light in order to gain the necessary support. Hence by the time your idea is fiscally viable to be brought to life – you have already effectively marketed it throughout the net!
  • Where people involved – there will be ideas! On the way, you will pick up on certain comments, suggestions, corrections, and criticisms. And please pay most attention to the criticisms aspect, because if it is valid and well constructed it might help you improve!
  • A great way to try out a risky idea. We are often getting locked in the conventional understanding of products or services, well Crowdfunding smashes these confinement frames into pieces! Something you would not otherwise qualify for with mainstream investors – might turn into reality with the help of the public.
Cons / Negatives
  • You will have to come up with the idea or a project that people will like. In the case of debt-financing through the High Street Institution or a private investor, like some entrepreneur, you will have to provide a feasibility study into the final product of the fundraiser and calculate it’s future potential. With the Crowdfunding, you will probably aim to target the sentimental values of the common folk and hope for their rational attitude.
  • Unless calculated properly, bearing in mind the rise in costs of the materials (if it is a product) or a legislative change (if it is a service) you might raise sufficient funds to keep up with the production but will enter a STALL in growth. It is ‘fudging’ amount of work. You are advertising it, marketing it, putting it in the best perspective but you might end up with no future options. Crowdfunding dominates the idea of support to NGOs, charities and non-for profits, hence you have to be careful picking your words when bidding for help.

Investors
Those are similar to Friends and Family, but this time these people will probably come from an outside world. Those people will not know you – but they will do their thorough research. The will look into who you are and what you are proposing. Whether what you are proposing is worth for them to invest in and if it is worth it – how can they make even more out of it.
Getting investors on board is a key part in growth for any solid and reputable business, however, with it comes the responsibility of ensuring that money will be re-paid and reputation will be preserved. Sometimes you will get ‘caked’ with funds – some other you might land into a quicksand.

Pros / Positives

  • Investors might be sharing your ideas and adding value to them. Most businesses struggle due to the lack of immediate cash-injection and that’s what Investors are. They are walkie-talkie ATMs with brains. They provide you with the very needed lump-sums and might be passive enough to advise but don’t get their hands on day-to-day running of your venture ATM-1440x961.jpg
  • Thanks to the God-Like negotiation skills you have managed to gain an investment covering 60% of needed funds at the free-fall repayment rate. No pressure, no panic, no mayhem. You are utilising the money, turning debt into a stable revenue stream and scoop the mouth-watering income as a reward. Only then you have to repay the investor. (trust me it will happen 1 in 100 times but it is a possibility).
  • Passive Investors might not be sitting on your shoulders every day. There are those out there who are simply willing to earn % on their savings and are choosing low-risk investments to rip benefits in long-term. They won’t be expecting your reports on a quarterly basis and let you run loose until the agreed time of repayment.
Cons / Negatives
  • Subject to the agreement with your Investor you might end up obliged to pay a percentage of your annual turnover. For instance, if your business has turned £2500000 in a year you will pay the investor a penny on it in the sum of 4% (for example). You might get tied into a deal of 5-10 years revenue-based payments or alternatively – until the percentage won’t double or triple or quadruple the amount invested originally. That’s where you negotiations skills would come in. Do it the wrong way – earn to love paying the tribute.
  • Disagreements might arise from the way you are running or developing your business. Subject to the amount of investment received and your overall dependency on it you might be inclined to change the direction of travel for your business. Get ready to adapt to the thinking and vision of your investors – and it won’t be easy. HS-This-Way-That-Way-cropped
  • It might be the start of the end. Because Investors are not just banks who give you the money and want the contracted return – they are your strategic partners – you might deliver a fatal blow to your business if you won’t get the right investor in. They will have a say on your actions related to the company management and trade and if you two don’t get on – they might pull their investment out or decide to re-sell or reallocated the shares they own. If you are prepared to tight-up your belts and lose out now to gain big later, and your investor shares a different view which you are not prepared to negotiate or compromise on – you guys are doomed.

 

I hope that was helful. Lets see what we have done so far?

  1. Bootstrapping + Friends & Family
  2. Commercial Loans + Commercial Mortgages
  3. Equity Financing + Government Funding Scheme
  4. Credit Cards + Donations
  5. Crowdfunding + Investors (the stuff you just read)

 

FUNDRAISING (part 6) on it’s way!

*when we turn up in the club – all eyes on us – all eyes on us*

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