Friday, December 17, 2010

Join the crowd to give your business a helping hand

Written by Michell Rodger

Publisher: Scotland on Sunday - The Scotsman Date: 12 December 2010

"Small gifts from many are just as powerful as large gifts from a few."

It has never been tougher to start a new business or grow an existing one. There might be ideas aplenty, but there certainly isn't money aplenty. No matter what anyone says, securing a working capital loan from a bank or an equity investment stake from an angel is incredibly tough.
But there is an alternative. Have you considered raising the money you need from non-profit foundations set-up to provide financial support to business start-ups, disaster relief, cultural events and suchlike?

So-called "crowd funding" has grown out of crowd sourcing. According to Wikipedia - possibly one of the best examples of both - it is the collective cooperation, attention and trust by people who network and pool their money and other resources together, usually via the internet, to support efforts initiated by other people or organisations.

It looks like a financial model spawned and supported by online communities, but in fact crowd funding is not new. The Statue of Liberty was funded by donors, inventor Thomas Edison benefited from patronage to develop some of his more "outlandish" ideas, and Barcelona Football Club is owned by its members.

It is also a game-changing model that allows the most innovative businesses to steal a march on their rivals.

When Naked Wines was launched two years ago, founder Rowan Gormley knew the business would only survive if it could deliver better wines for less money than its competitors. Crowd funding enabled him to do that.

The company now has 100,000-plus customers who between them invest £1 million every month. The crowd-sourced capital has helped 22 winemakers set up in business and export to the UK for the first time (they previously didn't have the funds to do so) and helped them produce 85 exclusive new wines, which have won 37 international wine medals and gongs.

Crowd funding is the key to survival for independent winemakers. According to Gormley, the traditional route to market is killing independents because the costs you can't taste make original wines too expensive for normal consumers. The solution? Get thousands of people together to buy the wine before it is made.

The end result is a "virtuous circle", where winemakers get to do what they love and make a living. And wine drinkers get authentic wines for less than they cost at the cellar door.

One couple to benefit from the Naked Wine Angels' crowd-sourced fund is husband and wife Felipe and Constanza Garcia of Bravado Wines in Chile.

The pair raised the funds to go it alone when more than 1,000 Naked Angels pre-ordered 18,000 bottles of their first solo vintage in one afternoon. The entrepreneurial duo went on to win the Best Sauvignon Blanc trophy at this year's Wines of Chile Awards.

Serial entrepreneur Amanda Boyle is launching the first Scottish crowd funding venture, Bloom VC, in the new year. She got the idea from the music and film industries, where crowd funding has an established record of pulling together support from a variety of sources to bring a project to completion.

Boyle sees crowd-sourced capital as a paradigm shift for business start-ups. It's not classed as an investment, simply lots of people supporting lots of other people. The challenge, as she sees it, is in developing the system to introduce the business ideas, collect the donations and connect them in a safe and secure way.
"Everyone wins," says Boyle. "More new businesses mean more jobs and better quality of life. It sounds like a crusade, but it actually makes a lot of economic and business sense."

Scotland has a history of making things happen regardless of the hurdles and, when people feel that they are part of something, it's amazing what they achieve, says Boyle. Look around any town and you'll find examples of where local people have chipped in to finance a building, memorial, or event.

"Think about the neighbour's daughter making handbags, or the man at the end of the road who was made redundant and then started a delivery service. We all want to support the people around us when it contributes to the community around us," says Boyle.

In the words of Steve Case of AOL: "Small gifts from many are just as powerful as large gifts from a few."

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