Virgin Startup signIs this the start of a new trend – or even a new phase – in crowdfunding? Might it be another step in rewards crowdfunding ‘coming of age’ in the UK? It’s certainly getting noticed as the route of choice to seed a startup.
In a an interesting move Crowdfunder UK has hooked up with Virgin Startups – who worked with the UK government to create it’s flagship ‘Startup Loans’ scheme – is to offer loans to those who raise funds on their rewards-crowdfunding platform.
The logic is that ‘it’s about validation of the idea” in the belief that ideas ‘that are successfully crowdfunded are likely to be viable businesses” and “therefore more suited for one of [Virgin Startup’s] start-up loans”. Which, they say “is good news for anyone in need of help turning their idea into reality”. Which rather makes it sound like an option for anyone who has successfully raised a crowdfund.
Richard BransonCertainly a venture which has managed to create a product or proposition and persuade enough people to part with some cash in order to raise the money needed to make it a reality has gone a very long way to proving that a market exists – and that they can reach it. That’s a key part of the power of rewards crowdfunding. It does not however make the venture, at that early stage (which now has the money it needs to progress and prove itself) necessarily a good candidate for a startup, or any other kind of, loan.
Virgin Group Founder, Sir Richard Branson, is quoted as saying, “The great thing about being an entrepreneur today is the vast array of funding options available. The partnership between Crowdfunder and Virgin StartUp is a unique way for entrepreneurs to secure funding and receive the support and information they need to get their business ideas off the ground.” However – it’s unlikely to remain unique for long as undoubtedly it will be, cloned by others.
CrowdfunderIn fact unless and until there are revenues available to service such a loan, or at least they are clearly in sight or there’s some other means of servicing the debt, it’s really not advisable for such a startup to be taking on such a burden. By their nature very few such seed-stage businesses have reliable revenues, a steady income, to support borrowing. Which is why crowdfunding is such a great alternative in the first place.
jess rattyI’m sure that both Crowdfunder and Virgin Startup Loans are reputable companies with good intentions – and it’s reassuring to hear that the amount of such loan offers will be set by the Virgin Startup team. Crowdfunder’s communications manager  Jessica Ratty, kindly also confirmed “It’s not automatic and project owners will be undergoing an application process with Virgin Startup. Crowdfunding will be “assisting with eligibility” for loans.
But it would be a mistake to leave the impression that loan availability may be triggered by a successful raise because if this were the case it would be dangerous, and otherwise misleading.
Equity vs DebtOf course not every crowdfunder will want or apply for a loan – but neither should they be under any commercial or other pressure to take one. Especially at a moment of euphoria having just achieved their goal and, quite understandably, feeling on top of the world.
Handled well this combination could help a minority of crowdfunded entrepreneurs further accelerate their ventures.
But this approach is likely to be copied and in other hands however this would undoubtedly pose a real danger to some over-exuberant entrepreneurs unused to such success and tempted to take and spend a loan they think they can repay in the moments of exuberance but which could prove the undoing of their venture in the medium or longer term.
Crowdfunding has proved to be a very effective antidote to the effects of irresponsible lending. It would be a very great pity if, at a time when it’s won it’s spurs and is making great inroads, in an attempt to ‘gild the lily’, it not only marred that record but led to more irresponsible lending, with all the misery that can entail. If this combination is copied elsewhere it is vital that this is done responsibly.

barry-jamesBarry James is the co-founder of TheCrowdfundingCentre and the Social Foundation. Founded in 2012, the organization was created to further research, education and policy initiatives into the new, post-crash economy and “Crowdnomics”. James also created “Crowdfunding: Deep Impact”, the UK’s first national conference held in February 2013 which led to the influential Westminister Crowdfunding Forum. James is a frequent speaker on crowdfunding, entrepreneurship and innovation. He has recently created CrowdPowerTools.
Cartoon Crowd Links, Layered System Close-Up

Published: Apr 20, 2015 | Marc Prosser | Forbes

Why Small Businesses Are Not Yet Embracing P2P Lending and Crowdfunding

If you read business news, you might think that crowdfunding and peer2peer lending are very popular sources of business financing just by the volume of media coverage that they get. But P2P and crowdfunding platforms are relatively new to the lending space and make up a tiny fraction of business loans. Here, we explain how popular P2P loans and crowdfunding are compared to other sources of financing and why small businesses still haven’t warmed up that much to them.

Peer2Peer & Crowdfunding Lending In The Overall Loan Market

Peer2Peer lenders bring investors and borrowers together in an online platform. Borrowers say how much they need to borrow and provide some basic business information, and individual investors decide whether to fund the loan. P2P loans are like ordinary loans–they carry an interest rate and must be paid back within a certain time. Popular P2P lenders include Lending Club and Prosper.

While Peer2Peer lending is generally for established businesses, crowdfunding is more for startups. Early stage businesses can pitch an idea, and ordinary people as well as wealthy investors (sometimes hundreds) can donate small amounts of money to the project. In exchange, the business owner offers donors some small incentive (e.g. free t-shirt with the company logo) or a larger benefit (e.g. equity in the company). Kickstarter and Circle Up are popular crowdfunding companies.

While these are certainly innovative ways for businesses to raise money, the great majority of small businesses don’t use P2P lending or crowdfunding. In a survey conducted by Manta, only 2 percent of small business owners reported using crowdfunding. Another poll from Gallup-Wells Fargo found that just 3 percent of small businesses used crowdfunding.


Why Don’t More Small Businesses Use P2P Lending and Crowdfunding?

  • They’re hard to qualify for

Even though crowdfunding sites market themselves as being a go-to source of funding for startups, in reality only a few startup ideas are crowdfunded. CircleUp rejects 98 percent of startup applicants because they wouldn’t provide a good return on investment for investors. Another Crowdfunding site rejects “idea stage” companies and prefers more serious businesses.

If you are an existing business, Peer2Peer lenders can also be difficult to qualify for. Peer2Peer lenders require you to have a good credit score (600 or higher), and you should be in operation for at least 2 years.

Alternative lenders, like OnDeck, are actually easier to qualify for because they have lower credit score requirements (above 500), and you only have to be in business for 1 year.

  • Peer2Peer lending can be costly

Even though it may be the most innovative source of funding, Peer2Peer lending is definitely not the most affordable. APRs for one popular Peer2Peer company, Lending Club, range from 14 % to 19 %. This is cheaper than alternative short-term lenders, but banks and SBA loans are significantly cheaper. Granted, banks take a lot longer to issue loans that Peer2Peer sites, but if you can wait and you can qualify for a traditional bank loan or an SBA loan, that will be the less expensive option.

  • Technology

In the Manta survey, many small businesses said that they didn’t use crowdfunding because they didn’t understand the technology or didn’t trust the service being provided. While this may certainly be stopping some small businesses from using crowdfunding or P2P lending, these sites actually aren’t difficult to use. Any business owner can create an account on Lending Club or Kickstarter and pitch their business idea or seek out a loan. I think the distrust stems from a lack of knowledge that crowdfunding and P2P lenders should address by doing a better job of reaching out to the small business community.

  • Too many cooks?

One last reason why small businesses might not be successfully using crowdfunding or P2P lending is because famous ideas are crowding out the little guys. For example, director Spike Lee and actor Zach Braff have used Kickstarter to raise funds for their films! Some people believe this is fine because investors have the right to choose which project to support with their money, regardless of who is leading the project. On the other hand, some people argue that this destroys Kickstarter’s stated mission of bringing visibility to projects that otherwise wouldn’t get off the ground.


Crowdfunding and Peer2Peer lending have the potential to revolutionize the lending space if more businesses catch on to the trend. However, as of now, it still makes up a very small slice of the small business loan pie.


Published by Terry Collins | April 19, 2015 5:00 AM PDT

Experts believe controversial, political crowdfunding campaigns show no signs of slowing down.

By the next day, as cable news channels played footage from police body cameras that captured, in visceral detail, the shooting of the black suspect by the white officer, the popular crowdfunding site suspended the campaign with little comment or warning.

The site has now officially removed the campaign, saying it “did not meet their standards.” Not a single dollar was raised.

This wasn’t an isolated incident. Just a week ago, Indiegogo removed another campaign to raise cash to pay the legal bills of a white officer charged with murder in the killing of a black man, after a witness’ smartphone video of the shooting went viral. In that case, the campaign for now-former South Carolina police officer Michael Slager raised more than $1,300 of its projected $5,000 goal before it was taken down. GoFundMe, another crowdfunding site, removed a similar page supporting Slager.

A shift is happening. Crowdfunding sites are typically places where people seek public donations for projects ranging from paying medical bills to helping the homeless to starting up businesses to manufacturing a product. Some campaigns even invite donors to contribute in exchange for one of the finished products.

Now those same crowdfunding sites — whose reputations were built on helping musicians, artists and other people behind good causes raise money — are becoming new portals to fund people involved in controversial, emotionally charged issues.

It’s not just to help policemen accused in shootings. A campaign for a small-town Indiana pizzeria that publicly supported a controversial “religious freedom” law critics said was anti-gay took in more than $800,000 in crowdfunding — despite a national backlash. Similarly, a Washington state florist that was fined $1,000 for refusing to sell wedding flowers to a same-sex couple netted nearly $170,000 in crowdfunding.

Also, before the coast-to-coast outcry over the fatal shooting of Michael Brown, who was black, by white Ferguson, Mo., police officer Darren Wilson last summer, fund-raising pages were set up for both men. Wilson’s GoFundMe page even netted more than a quarter-million dollars before it was shut down without explanation.

It raises the question: Is every major polarizing issue now a cause worth crowdfunding?

“I think it was kind of inevitable that crowdfunding would be used to address more controversial, divisive issues,” said Rodrigo Davies, a crowdfunding researcher at Stanford University. “I’m not at all surprised. It was just a matter of time.”

However, Davies, who also is the head of product at the civic crowdfunding site Neighborhly, said what does surprise him is that Indiegogo and GoFundMe pulled the crowdfunding pages of the officers involved in the recent shootings, and that they did so without any rationale.

“They can’t just hold their hands up and say, ‘Hey, we’re just a host,'” Davies said. “What they have done now sets the tone for future campaigns.”

A GoFundMe spokeswoman declined to comment and an Indiegogo spokesman had no immediate comment.

Richard Swart, a researcher at the University of California, Berkeley who focuses on crowdfunding, has a similar point of view.

“I would’ve yanked them down, too,” Swart said, but that doesn’t mean the sites should have. “I think they were politically polarizing, and I don’t think crowdfunding is meant to create polarization.”

Swart said this hot-button type of crowdfunding has been happening in America for the past couple of years with no signs of letting up.

Both researchers say more politicized, niche crowdfunding sites will eventually sprout up.

“We’re just scratching the surface for sure,” Davies said. “Is there an issue you’re passionate about, and can we apply collaborative funding to it? Probably.”

Crowdfunding-Global Challenges

I recently published a report with Mary Milner addressing how crowdfunding models can be used to address global challenges across multi-national networks.   What is fascinating is how rapidly the nature of conversations about crowdfunding is changing among top policy makers, corporate leaders and foundations.

Mary Milner

At a recent international forum, this paper was discussed with global leaders, including the World Economic Forum, and crowdfunding is seen as a significant opportunity for increasing access to capital.  In the US we talk about how the promise – not yet met – of crowdfunding is the democratization of access to capital for entrepreneurs.  Globally, crowdfunding is seen as a mechanism for providing access to capital for a massive amount of the world’s population that remains outside of World Economic Forum Logotraditional banking and finance systems.

It is becoming widely accepted by policy makers and economists that most of our current developmental economic models are an abject failure.  The “world order” of the IMF, World Bank, United Nations, etc., grew out of the Bretton Woods accords at the end of WWII.  China is assertively challenging the hegemony of the US Dollar and the power of the World Bank. There have been meetings at the UN discussing whether the institution should be dissolved and a new institution take its place.  Many respected economists accuse the IMF of predatory or abusive lending practices that serve to protect the economic interests of first world nations over the needs of the developing nations.

Click here to read the full article.