Crowd Funding, What is it?

Crowdfunding is an alternative method of raising finance for a business project. Unlike traditional angel investment, in which just a few people typically take a larger share in a business, with crowdfunding an entrepreneur can attract a ‘crowd’ of people, who may not have invested in shares before, each of whom takes a small stake in a business idea, by contributing towards an online funding target.

 Crowdfunding is not new. In 1997 fans underwrote an entire US tour for the British rock group Marillion by pooling their money. The film industry first used Crowdfunding in 2002 and a Trade Association for freelance workers raised £100,000 in 1999.

In the UK there are two main types of crowdfunding:

Equity crowdfunding mainly used for funding start-ups and each investor receives an equity stake in the company and Debt crowdfunding, which is not used for start-ups, the company has to be at least two years old and the money is a loan over 1, 3 or 5 years.

The main benefit of crowdfunding, other than raising much needed capital, is that it creates a strong network of support for your company. The equity model is especially good at creating ambassadors for your brand, promoting it amongst their networks, family and friends and often becoming returning customers themselves.

How does it work? Although the rules differ from site to site, generally an entrepreneur will pitch his/her idea, set a fundraising goal and set a deadline for raising funds. Potential lenders or investors can review the pitches and decide if there are any they would like to support. Many entrepreneurs will also offer incentives to investors in the form of discounts and special offers. If the total required is not raised then the funding does not go ahead.  The procedure for a lending crowdfunding site is not quite the same. On these sites you have to decide what interest rate you want to receive and then you bid for a portion of the loan.

How do I choose which crowdfunding site to use? Here are my six top tips

·         Choose the right site. Do you want equity or debt?

·         Know your target audience and pitch accordingly

·         Plan ahead. A first class business plan is essential, good special offers for the investors are important and make certain you keep the interest going and have news items ready for each week of the investment cycle.

·         Be passionate., include images and think seriously about a video to really get your message across

·         Make certain you explain exactly how the money is going to be spent

·         Do not leave it to the crowdfunding site to find all your investors for you. Leverage all your family and friends and publicise it on all your social networks. No one wants to be first to invest so make certain that a family member invests a small amount right at the beginning and keep the momentum going. It is easy to get investors at the end but difficult to get them at the beginning.

If you are a small start-up with a product that can catch the general public’s imagination then equity crowdfunding may be the simplest and only way you may get your company up and running. If you are an established company but the bank will not lend to you, then debt crowdfunding could be the answer.

Crowdfunding is still only a small part of the fundraising scene in the UK, but it is growing fast and if the banks are not careful they will soon start to see a dent in their customer base. If you need funding then it is certainly worth your while looking into crowdfunding.

CPD Training Day: Raising Finance for SMEs 21st June 2012

Do you have cash flow problems? Do you have problems paying your VAT or PAYE? Do you struggle to finance new orders and to buy raw materials? Is your Bank being difficult? Do you want to launch a new product but just do not have the capital you need? Do you need larger premises but cannot get a commercial mortgage? Are you a start-up and need to find investment? Are you paying over the odds for your invoice discounting or factoring? These are just a few problems that demonstrate why you should be continually reviewing your funding needs and why you should attend this CPD training day.

During this Raising Finance for SMEs training day Peter Kelly and Alan Cottle will share their experiences with you .

The course will cover such topics as:

• The right questions to think about concerning funding issues and what information you need to prepare.

·         The stages of growth that a company goes through and what are the best funding options for each stage.

·         Debt funding and the types available including EFG loans, commercial loans, commercial mortgages, overdrafts and asset finance

·         How to get the best Invoice Discounting or Factoring deal  including special single trade funders and single invoice funders.

·         Trade finance for manufacturing and importers

·         Equity funding including Angels, Venture Trusts and VCs

·         Funding for Companies in distress

·         The common mistakes that everyone makes and how to avoid them.

At the end of the course you will be able to ask the right questions, gather the required information and decide on the best course of action.

The course is open to all including your colleagues and your clients

The cost is only £175 + VAT

Registration is at 9:30 am for a 10am start and the day will finish at 4pm. There is a one hour lunch break and a coffee break in the morning.
The course will be held at the Greetham Valley Hotel Golf and Conference Centre,
Wood Lane, Greetham, Oakham, Rutland LE15 7SN
Telephone: (01780) 460444

To book a place for yourself and for your clients please contact either Peter Kelly, 01932 244810, peter.kelly@pegasusfunding.co.uk or Alan Cottle, 01225 782934, alan.cottle@pegasusfunding.co.uk

Remember the date: 21st June 2012

Here is some feedback from the previous funding workshops

‘A very informative day, lots of info and answers’

‘An excellent day’

‘A good and valuable day, thank you for your effort’

‘A very helpful course, met my aim of becoming more knowledgeable in my first funding conversation with clients’

‘I learned valuable knowledge that I can use when raising finance...... I expect to be in touch with you frequently.’

‘Clear and practical description and advice, definitely people I could work with’

‘Really useful day, invaluable’

Pilot Scheme for Funding Young Entrepreneurs

A new government scheme designed to provide funding to young entrepreneurs, and trailed by George Osborne in his latest Budget, is to be piloted from May 2012.  The neat twist is that the “Youth Investment Fund” is to be based on the student loan system, and will give 18 to 24 year olds access to low interest “enterprise loans” to start up in business.

Business and enterprise minister Mark Prisk said in Parliament on Wednesday that:

"In a sense [the scheme] mirrors what is available in the market for other entrepreneurs, but it is an exciting concept because it will provide the means to take a nice idea that needs to be tested in the market through to a business plan, and then on to becoming a real business"

While the initial fund for the pilot is worth £10M, further funds may be made available once the pilot scheme has been evaluated.  At this stage the Department for Business, Innovation and Skills have not released any more details about the pilot scheme, but these should be made public in the near future.

The concept has been developed by the Government in partnership with organisations such as the National Youth Enterprise Working Group which was formed last year to try to co-ordinate support for young entrepreneurs.  Members of the working group include the Institute of Directors, The Prince’s Trust, and Virgin Media Pioneers.  With those sorts of backers, the pilot scheme stands a good chance of success.

Are we really in a double dip recession?

Well we will be if we talk ourselves into it. The 0.2% decline is only an estimate. Only 40% of the information has been looked at. This is bound to be adjusted in the next few weeks. My guess is that it will be adjusted in a positive way and that we will not have gone into a double dip recession. We may still be dragging along the bottom with very little growth but we will not be in recession.

Why do I believe this?

Many of the other indicators are positive.

The Office of National Statistics says that the biggest culprit was the construction sector and that it shrunk by 3%. But the Purchasing Managers Index indicates that the construction PMI figure was 51.2, anything over 50 means that the sector was in growth. The same goes for the services sector with 3 months PMI figures of 56, 53.8 and 55.3.

So are we really in a double dip recession? Most probably not unless we talk ourselves into one.

Late Payers putting SMEs at Risk

A new report has revealed the scale of threat to business survival posed by late payments.

The late payment of trade invoices is threatening the profits, growth and even survival prospects of small firms, but few use formal procedures to tackle the problem. This is according to the findings of a research report by Graydon UK, working in partnership with the Forum of Private Business.

The survey, which canvassed the views of 500 UK small businesses, revealed that 51% of companies cite the late payment of trade invoices as a problem. Almost a quarter (23%) of these companies subsequently indicated that late payment is a serious problem, with 16% saying they have almost been put out of business as a result.

Meanwhile, 56% of those respondents not paid on time have, in turn, been forced to pay their own suppliers late, and 45% reported that late payment has eroded their profits. Almost a quarter (23%) asserted that late payments have undermined their ability to invest in growth through innovation.

The research also shows that businesses which embrace credit control procedures of some form are significantly less likely to suffer as a result of late payment. Less than half (44%), however, employ formal credit control procedures, with 38% instead relying on a mix of formal and informal processes, and 16% juggling payments on an ad-hoc basis.

Only a third (33%) of respondents offer prompt payment incentives, and just 30% use existing legislation to charge interest on late payers, while 40% use cashflow management software. In addition, debt collection agencies are employed by 42% of respondents, and 43% keep a reserve in the bank to offset late payments.

How to Write a Winning Funding Business Plan

Part 3 (final): The Content

In part 3 of this series of blogs, I want to concentrate on the required content of each section of the plan. I will not talk about the Executive Summary or the Structure of a plan as this was discussed in part 2, last month. If you missed part 1 or part 2 please contact me and I will forward copies to you peter.kelly@pegasusfunding.co.uk

After the executive summary (section 1) the next section of a plan normally discusses the corporate structure and trading history, if any.

Corporate Structure/Company Development: (section 2)

The sub-sections in this section would normally include:

·         Company history

·         The location

·         Ownership structure

·         The management team

·         An organisation chart for the next 3 years, showing starting dates of future employees

·         A description of the staff requirements

·         Details of trading performance to date, if any

·         A list of major accomplishments achieved so far

Company Objectives: (section 3)

·         Turnover and profit and loss for the next 3 years

·         What other objectives can you list, such as:

§  Number of new products per year

§  Number of new distributors, new resellers.

§  Number of new countries to be opened up.

Product/Service: (section 4)

·         The most important part of this section is a description of the ‘Need’ for your product or service

·         Then a description of the product/service. If it is a technical product then describe it as simply as possible

·         What are the unique selling points?

·         Have you done a ‘proof of concept’? if so the results of this should be discussed in detail.

·         What future enhancements are likely?

·         What patent protection do you have?

·         Who are the competition and what are their strengths and weaknesses?

Marketplace: (section 5)

I normally start this section with a description of the barriers to entry for anyone else seeking to enter this market. I then describe:

·         The exact marketplace and the size of that market today and in the future

·         Who the likely customers are and their likely spend

·         It is also a good idea to quote any testimonials that you may have been given and list any letters of intent that you may have

Sales & Marketing Plan: (section 6)

It is sad to say that many plans do not pay enough attention to this important section. I often see well written plans that are nothing more than a marketplace and product description and nothing else. This section must be given great attention.

·         What is your sales model?

·         What is the structure of the sales force and who will manage it?

·         What is the average sales cycle?

·         What sales ratios are you expecting?

§  Number of enquiries to meetings

§  Number of meetings to sales

§  Number of expected meetings per week per salesman

§  Average order value

·         What are the 3 year sales targets?

·         A full description of all the assumptions you have made in deciding upon the sales targets. Without these sales assumptions the funders cannot decide if they believe your sales and profit forecasts

·         How do your prices and service levels compare to your competitors?

·         What is the structure of the marketing department and who will manage it?

·         What is your marketing strategy?

·         A detailed marketing plan, listing with details, all the different avenues to be taken and the costs and frequency involved.

·         Finally a small spreadsheet showing the amount for each type over a three year period, totalled annually

Operations Plan (section 7)

This is often another section that gets forgotten about. You have described the product and how you are going to sell and market it, but you have not described how the company is actually going to operate.

In this section you need to describe:

·         The facilities and location of the office you already have, or will need

·         What people in which positions you already have and how many new people you will need and when?

·         What equipment will you need to purchase?

·         What are the manufacturing, ordering and fulfilment processes?

·         What suppliers have you already in place and which need to be found?

·         What customer service and complaints/returns procedures are in place?

The Management Team: (section 8)

·         Who are they?

·         Their track record and industry experience

·         Their experience in key functions

·         Future management requirements

·         The management team remuneration packages

·         The share ownership structure

Financial Model: (Section 9)

It is important to put into words the information that you show in your financial model. Not everyone is comfortable with complex spreadsheets and prefers to read about the information instead. The subsections in this section include:

·         What are the drivers of your business?

·         A summary and description of all the forecasts

·         The balance sheet

·         Repeat all the assumptions that have been made in the forecasts

·         List all sensitivities

·         A SWOT analysis

·         Details of any historic accounts

·         What corporate Governance will be in place?

·         What are the funding requirements?

·         The amount of capital introduced to date and from where

·         What is the funding needed for?

·         Prospects for the investor, either ROI or IRR.

·         Your exit strategy

·         The costs you have included for raising the funds

There are many different ways of writing a winning funding business plan. My way is not the only way but it is the way that I have used successfully for over 10 years. If you follow these guidelines you will have the basis of a good plan.

If you have missed part 1 and part 2 of this blog please contact me on peter.kelly@pegasusfunding.co.uk or Tel: 01932 244810

Follow us on Twitter and keep up to date with funding issues: @peterekelly

Cash Management VIP for Manufacturers.

KPMG’s third Business Lending Survey has found that 95% of manufacturing executives across Europe and the Middle East say that maintaining a sound balance sheet and improving cash and working capital management are currently top priorities for their business.

Other priorities include:

•           Changing business operations to realise cost efficiencies (42%).

•           Innovation through product development (35%).

•           Looking for growth in emerging markets (31%).

•           Exploiting growth opportunities through successful transactions (28%).

Looking ahead, 82% of manufacturing executives agree that they will need to capitalise on trends such as emerging markets, efficiency of resources and sustainability. They believe that such activities will better equip them to withstand market challenges such as increased regulation, shortages of raw materials and threats from new competition in a changing market environment.

In the long run, however, innovation through product development is expected to be a key driver for the manufacturing sector. At the moment, 43% of manufacturing executives believe that a shift towards the commercialisation of current technologies and products over traditional research and development is expected in the near future.

Stephen Cooper, UK head of diversified industrials at KPMG, said: “The government will need to play its role in this movement if the UK’s manufacturing base is to benefit from the commercialisation of current technologies. Business-friendly intellectual property laws and targeted incentives will be required if the UK is to become a pioneer in technologically innovative products.”