Equity Equity crowdfunding – where companies market their shares, as well as their products, to the general public
You may have a preconceived image of ‘crowdfunding.’ It is populist, democratic and all-inclusive. Websites like www.wefund.com boast proudly of having financed a Boy Scouts’ expedition to Madagascar, or a youth drama group in Wolverhampton. But is it profitable for shareholders? Stockholm’s new equity crowdfunding group www.FundedByMe.com has the big bucks necessary to attract serious market contenders, with a total asset pot of €54,575,900.89 at last count.
After secret tests of its new business model, the equity branch of ‘FundedByMe’ launched just over a month ago. Already this crowd seems to have the global presence to connect entrepreneurs with a very large number of shareholders. The social networks it weaves between investors and entrepreneurs allow people to build a professional reputation with minimal capital outlay on marketing and PR.
Another handy feature lets you do ‘digital due diligence’ on your offerings; and, for shareholders, facilities to manage their online portfolio in the same manner as trading platforms like Forex.com, or CityIndex. The difference being that this platform has a minimum investment level of €0 to join.
Once onboard, you can surf the various schemes on offer. A recent success story is ‘Virtuous Vodka,’ the brand which offers an organic spirit, free of artificial additives and flavourings. It raised 75% of its target of 1million SEK in just one month.
Aspiring CEOs can get advice and feedback on their initial business plan during the ‘pre-round’, to test valuation, pitch and market temperature. After fine-tuning of the essentials, the company moves into an open round where investors can bid freely for shares.
One to watch in the pre-round is Trampooline, a trampoline suspended above a swimming pool, secured to its side by what appear to be padded walls. Safety considerations aside, this idea could revolutionise the waterpark and hotel industry. The brand describes its mission as simply “to make the safest and coolest trampolines on Earth, that double as relaxation furniture when you´re not jumping.”
Previously established crowdfunding sites like www.kickstarter.com and www.Indiegogo.com tend to favour artistic or new media projects by individual entrepreneurs – that, or ‘Save my Puppy from hip dysplasia’ funds. Kickstarter remunerates their subscribers’ hundreds or thousands of part-owners through gifts or pre-orders.
Stockholm’s start-up differs because it offers actual interest and dividends on shares. It seems to favour listed companies and manufacturing innovations, which have more concrete funding requirements and require pre-planned budget allocation and strategy.
It is difficult to determine what happens if a project fails to gain its intended sum on FundedByMe. With Kickstarter and Indiegogo, entrepreneurs have the option or, for the former, make it mandatory to use an “all-or-nothing” funding approach: if schemes fail to gain enough funds to reach the goal they have set themselves, none of the investors who subscribed are obliged to pay. This protects shareholders from losing money if schemes fail to reach completion.
Because it is actually illegal for companies in Sweden to advertise their shares to investors before an initial public offering, FundedByMe describes itself as more of a meeting-place, where potential stakeholders can express their interest in advance. When shares are floated, the company knows in advance the identities of all the interested parties. Equity crowdfunding in this context seems like a well-structured social network for venture capitalists.
A matchmaking website, for the have-a-go investor and the company with a groundbreaking idea. It needs a better name though. Moneymatch.com?