Belfast Telegraph

Saturday 25 October 2014

Beer and bike lights: Crowdfunding - the future for small businesses in Northern Ireland?

A web-inspired way for small businesses to raise capital is proving a hit

Crowdfunding: A web-inspired way for small businesses to raise capital is proving a hit

What is crowdfunding? In short, it's a means of achieving a funding target by inviting anyone to 'back' an idea or product with cold, hard cash.

It can be anything from a quid, to hundreds, or indeed thousands of pounds.

Projects -- through sites such as Kickstarter -- choose a deadline as well as a financial target or minimum funding goal.

What this offers those who invest, varies, depending on how much is contributed. Typically, it can range from merchandise or an 'early adopter' version of a product.

While Kickstarter, along with many others, has been gathering pace in the US, the site has only been operational in the UK for just over a year.

So, what's the catch? Well, as with most companies trying to sell their wares on the website, Kickstarter is, of course, itself a business seeking to make money. The site takes a commission of around 5% with an extra percentage charged for the external payment system.

Almost everything has been tried, from technology and software, to films and books, along with a project to send a 'Tardis' into space. Aside from Kickstarter, long-established sites such as Crowdcube and Indiegogo operate a similar concept.

There's strength in numbers -- or so the saying goes. For years, there were only a handful of ways up-and-coming firms could finance their start-ups: bank loans, equity investment or stumping up the cash themselves.

But, as with much of the business world, the web has helped transform how concepts and ideas can now be realised and supported by anyone -- through crowdfunding.

Four-year-old US firm Kickstarter, in many ways, truly 'kickstarted' the concept, and with just over a year of accepting UK submissions, some of Northern Ireland's brightest enterprises have jumped on the bandwagon to raise tens of thousands of pounds in the process.

Crowdfunding, in simple terms, allows companies to set out a proposal, concept or product brief along with a funding target and deadline.

'Backers' can then donate as little as £1, or as much as £5,000 -- receiving a comparable 'package' of goods in return.

Belfast-based Brewbot took advantage of the concept. Combining modern smartphone technology with the ancient skill of brewing, it raised over £114,000 in just one month.

"Why did we do it? We had a product that we thought would work well," explained Brewbot's 31-year-old chief executive Chris McClelland. "We saw it as a way of launching our product. You are asking people to buy into your dream, for them to understand it."

Brewbot's concept -- which allows beer brewers to take a lot of the complexities out of the process using a mobile smartphone app -- now has hundreds of early adopters lined-up and ready to receive the product.

"In our case, depending on the pledge, those funding could receive anything from a free download and T-shirt to, in the case of our £5,000 pledge -- a limited edition Brewbot system and a five-day trip across Ireland to visit the breweries."

Although such sites have now made their platform available to firms in the UK and Northern Ireland, the concept was first realised around four years ago.

Some of its recent successes include several US-based tech products, many of which were formed from a collective of like minds, and interests, on forums across the internet.

Pebble -- an early take on the smartwatch -- raised more than $10m. Another raised product, Ouya, came about through a huge collective interest among gamers and fans of Google's mobile platform Android. Almost $9m later, and a fully fledged games console was being produced.

Of course, some concepts fail to reach the target. But almost half of those submitted in 2011 met their funding goals.

While Kickstarter, and others, have often catered for digital projects, they have also been used for funding films and books -- with acclaimed Bangor author and screenwriter Colin Bateman among those availing.

For companies such as Brewbot and Newtownards bike light firm See Sense, crowdfunding has proved a successful way of raising the start-up capital needed to get a foothold in the marketplace -- without financial aid from the banks.

"The other options are in the form of equity funding from investors," said Mr McClelland. "In our case, banks were completely out as an option. The other way is bootstrapping, which is a very slow process."

According to Philip McAleese, of See Sense, the advantages of receiving funding 'through the crowd' have been key to getting the firm up and running quickly.

"Kickstarter provides the money upfront -- two weeks after it closes," he said. "That's why, with a product or idea where you are not sure of the market demand, you can avoid taking the risk of putting your own money forward for tooling, for example."

As with most crowdfunding websites, Kickstarter works on commission, taking its fee if the projects achieves target -- with each being heavily vetted by the company for suitability.

But, is this relatively simple and straightforward funding model enough on its own, or do firms still need to go out there and raise equity?

Mr McAleese's company is using the £33,000 it received as a stepping stone to get the product on the market, before seeking additional funding.

"With something like Kickstarter, there are two ways of looking at it -- you are either making an album, or a one-hit wonder," he said. "In some cases, it can exist by itself -- for smaller ideas. For us, it helps us to look for equity. We can go to the big stores or investors and say, look how many we have sold."

And as for advice for would-be start-ups considering crowdfunding, Mr McClelland recommends planning and choosing the project wisely.

"Open-source ideas will do well. Certain products, like hardware, are often difficult if you are not capable of building it.

"Have a think, and then review it."

So, is this the future for small-scale business funding?

In the space of 12 months several Northern Ireland firms have proved it can certainly work -- and work well.

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