Crowdfunding

Crowdfunding

Entrepreneurs are having a tough time at the moment, as banks are slow to loan them money but start-ups are increasingly finding funding through other means – by asking complete strangers.

There is a counter-cultural buzz in the small town of Frome in Somerset. Independent cafes and shops line the hilly cobbled streets, and rare is the window not plastered with posters advertising theatre productions or art exhibitions.

But even in this enterprising place, it is somewhat surprising to find evidence of an increasingly powerful new business idea.

In a small workshop just outside the town centre is the Bicycle Academy. It’s a new business dreamt up by Andrew Denham, who wanted to run bike-building courses that were within the budget of the average cycling fanatic.

He also wanted to incorporate a social enterprise element – the first frame made by every student would be donated to a charity in Africa.

But there was a rather significant problem. He did not have enough money for the premises or the equipment needed to start the business.

In the recent past, budding entrepreneurs might have dropped into one of Frome’s banks or even maxed out their credit cards to raise funds, but Mr Denham decided to try crowdfunding instead.

Last November, he put his business proposal on a website and asked the general public – total strangers – for money.

“We had six weeks within which we needed to raise £40,000 – we actually raised all of the money within six days,” he told Radio 4’s ‘In Business’.

Donors to the Bicycle Academy received a T-shirt if they pledged £20, and other rewards, such as bags and model bikes, for higher amounts.

A donation of £300 secured a place on a one-day bike building workshop. Donors of £500 or more were able to reserve the first places on the academy’s four-day course.

Chris Vernon was one of the big donors who started building steel-framed bikes at the workshop last month.

“I was one of the early backers, just because I had the money there and I thought this would be a useful project to engage with at the earliest stage,” he says.

“But also I really wanted to see it happen, so I was very keen to put my money in and encourage others to do so.”

Crowdfunding expands

Crowdfunding was originally conceived as a way to fund mostly unprofitable creative projects such as films, band tours and album recordings. US websites Kickstarter and Indiegogo have raised millions of dollars for artists of all stripes.  The Financial Services Authority recently published guidance on crowdfunding investment warning investors that many crowdfunding opportunities are high risk and complex, and are suited to sophisticated investors only.

Source: BBC News