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4 Lessons I Learned From A Crowd-Funded Startup – hypebot

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Guest Post by Niels Footman on
MusicTank

In less than a decade, crowdfunding has gone from being completely
unknown to becoming part of the creative world’s furniture.

But while companies such as KickStarter and, more recently,
PledgeMusic have proved remarkably successful for artists,
their “gift-giving” model hasn’t always been ideal for young
creative companies – particularly those offering a service.
 Also, when certain products have gone stratospheric via
incentive-based crowdfunding, some backers have felt a little
peeved that their initial investment generated the company vast
amounts of money, but the investor – financially, at least –
nothing.

What, then, of the relative newcomer, equity
crowdfunding?

Before I continue, let me offer a brief introduction to
us. Living Indie is a platform that streams
concerts live to any connected devices.  Our aim is to
create a new social experience, either by bringing people
together physically, in pubs, cinemas or their own living room,
or connecting them with other music fans worldwide via our
social streams.  In our 18 months or so of operations in
the UK, we’ve streamed acts including John Grant and Nile
Rodgers, and built up a subscriber base in excess of 12,000.

Until late last year, we had followed a fairly well-trodden
path for young startups in London. We had won a place on an
accelerator – in our case, Telefonica affiliate Wayra.  We
would frequently pitch at industry events and we had several
review panels in front of angel investors.  The response
we had was frequently similar: exciting idea, not sure
if it’s quite right for us at this stage.

The uncertainty over investing in us generally broke down into
two areas: “regular” investors, typically angels or VCs, would
often be unfamiliar with the music business and uncertain about
its future.  Among potential investors from a music
background, the bigger issue was finding someone willing to
take the initial plunge, the pioneer who would open the gates
to (we hoped) the flood of excited investors to follow.

With our time at Wayra nearing an end, we opted to try equity
crowdfunding. It wasn’t a decision we took lightly.  We’d
heard tell of Herculean workloads, particularly in terms of
marketing.  We also knew that short of appearing on
Dragons’ Den, it would be the ultimate public validation (or
humiliation) of our baby.  If we openly advertised
ourselves as looking for investment, and still no one bit, what
then?


Money_bags
We elected to use Crowdcube, one of the biggest and most
established firms in what is a very young industry.
It
was, we’d have to say, an excellent decision.  Crowdcube
was scrupulously thorough from the outset, sending us back more
than 50 queries about our initial application.  Besides
some points on specific numerical claims, no marketing speak
escaped the laser-like glare of our counterparts at Crowdcube.
 “This service will be irresistible to music lovers
worldwide”, we said. “Prove it!” replied our interrogators.

As time-consuming as it was, Crowdcube’s attention to detail
was ultimately very reassuring to us, and will presumably be so
to prospective investors, too.

Once we’d completed the application, we had the tortured
decision of when to launch. Crowdfunding blogs urged many
months of preparation, with a relentless focus on wooing
journalists and rekindling old friendships.  We’d spent a
halting few months on that.  Most important was securing
the initial bit of funding that would show the beginnings of
interest in Living Indie.  This we did with money from one
of our partners, who in effect served as the lead investor.
 As we discovered, this would be perhaps the single most
important development in our campaign.

We launched the campaign privately in mid-February, approaching
various investors and friends who’d previously expressed a
flicker of interest in the idea.  Here, we said: we’ve
already attained 15% of our target.  You can invest as
much or as little as you like.  And to top it all off,
investments are eligible for very favourable tax arrangements
(under a scheme called SEIS), which effectively writes off 50%
of your investment against your income tax.  By
the time we went public, we’d raised £65,000 of our £150,000
target.

With three weeks of our campaign to go, we have raised almost
110% of our target.  So what lessons could we draw that
would be of interest to other music companies looking for
funding?

  1. There is frequently a difference of emphasis between
    “conventional” investors and many of the people looking around
    the likes of Crowdcube.  So while crowdfunding
    can, and does, draw big institutional investors, it also
    attracts people keen to get involved in businesses

    like music because it’s their passion.  Make no mistake:
    we are utterly determined to grow and make money for ourselves
    and everyone who’s backed us.  At the same time, using
    crowdfunding has allowed us to generate support from
    out-and-out music lovers who would dearly like to see a service
    like ours succeed.  This has been crucial.
  2. There may never be as good a time to consider
    crowdfunding as right now.  
    The UK has one of
    the world’s most favourable regulatory frameworks for equity
    crowdfunding, including the tax arrangements that do so much
    to induce investors to back higher-risk, early-stage
    companies like ours.  Whether equity crowdfunding will
    work long term as an investment vehicle for everyday
    investors remains to be seen.  But for now, it’s proving
    a highly attractive forum for people looking to get involved
    either for strictly financial reasons, personal interest, or
    a mix of the two.
  3. You might assume that crowdfunding is a matter of putting
    your business plan together, posting your pitch on a platform,
    and sitting back as the money pours in.  Nothing could be
    further from the truth.  To succeed, crowdfunding
    requires a major, coordinated push to let absolutely everyone
    know what you’re doing,
    and then keep it at the
    forefront of their minds throughout the campaign.  Export
    your entire email contact list. Go to every networking event
    you can.  Nag every academic or professional group you’re
    connected to. Push, push, push.  The good news is that as
    a music business, we had a ready-made supply of excellent
    content to hang our crowdfunding efforts from.  Indeed,
    this is yet another reason why, despite the challenges,
    creative enterprises can be very well-suited to equity
    crowdfunding.
  4. It is impossible to overstate the importance of
    gaining some investment prior to (or very soon after) taking
    your campaign public.
     If you have any doubts
    about that, head over to Seedrs or Crowdcube and have a
    browse through the businesses there.  Without knowing
    what they do or how they plan to make money, see which ones
    grab your interest.  Nothing sends a more compelling
    message than knowing other people have invested first. 

Our crowdfunding campaign is ongoing, so we’d be delighted if
you’d head over to take a look for yourself (or just as
importantly, help
spread the word
).  Should you have any questions, feel
free to drop me a line:

Niels Footman, co-founder, Living
Indie niels(A)livingindietv.com

 

 

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