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Questions about GrowVC's crowdfunding platform

By Trampoline Systems | March 4th, 2010

A couple of weeks ago Hong Kong based GrowVC came out of closed beta and launched their crowdfunding platform to the world. I was excited because GrowVC was described an “equity crowdfunding” platform, implying that investors receive equity in the businesses they back. To my mind this is an essential requirement for any platform that’s serious about bringing private capital into start-ups. The path from formation to exit is frequently long and bumpy. Only equity ownership can provide investors with strong enough assurance they’ll get a fair return at the end of the journey.

All previous platforms have shied away from equity ownership. After the experience of structuring Trampoline’s equity crowdfunding process I can fully understand why. The thorniest regulatory conundrums are concerned with situations where people put in cash and get equity. Consequently crowdfunding platforms like Bandstocks and Sellaband (which has recently seen some turbulence of its own) have tended to structure themselves as clubs. In this model investors pay a membership fee which gives them the right to a share of profits from projects they back. No equity changes hands.

However after registering with GrowVC and spending an hour on the platform it looks like there’s no equity element after all. Disappointingly the platform appears to be structured on the club model. Entrepreneurs, investors and “experts” pay a monthly (or annual) fee. 75% of the fees are invested in ventures selected by the investors. 75% of the money from a venture that reaches exit is distributed to the investors who voted for it.

If this analysis of GrowVCs model is correct I don’t believe it has any chance of succeeding. The relationship between an investor and a venture is indirect and woolly. What happens if a venture is restructured? Or if an entrepreneur issues equity to investors outside the GrowVC scheme? GrowVC investors have no control and little security regarding the ventures they back. Under such circumstances no intelligent investor will be comfortable staking more than pin money.

It’s a shame because the platform looks well-designed and the world really could do with a proper equity crowdfunding platform. We’ll just have to wait a little longer.

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Crowdfunding presentation at Minibar

By Trampoline Systems | January 30th, 2010

Last night I gave a talk about crowdfunding at Minibar London. The audience mainly consisted of people working on early-stage ventures. I took a straw poll about funding. Some had already raised finance from friends and family or institutional sources. Many more were planning to raise money in the coming year.

I tried to present an uncoloured account of my experiences raising money from friends and family, venture capital funds and most recently through crowdfunding; highlighting the pros and cons of each. In relation to venture capital I particularly wanted to draw attention to the negative impact of preference shares, stealth control mechanisms like “reserved matters”, increased complexity in governance and the pressure to exit prematurely that can arise towards the end of a fund’s life-cycle. In my experience there is not nearly enough awareness of these issues in the startup community.

I enjoyed giving the talk. Thanks to everyone who was there for listening so attentively and for the interesting conversations after my session. Thanks in particular to Christian for inviting me.

Here are my slides from the presentation.

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First tranche of crowdfunding investment completed

By Trampoline Systems | October 29th, 2009

I’m pleased to announce that the first tranche of Trampoline’s crowdfunding process was successfully completed today. We had all the investor commitments more than a month ago but it took til now to get the paperwork drawn up and executed. The last few signatures came in earlier today. This is an exciting moment for Trampoline and an affirmation of crowdfunding’s potential for financing technology ventures.

Now the first tranche is complete we’re going to put all our focus back into growing Trampoline’s business. Sometime towards the end of January 2010 we’ll start preparing the second tranche.

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Crowdfunding one month update

By Trampoline Systems | September 4th, 2009

It’s now one month since we announced Trampoline’s crowdfunding project. As Techcrunch reported we rapidly received commitments for a third of a million pounds. We’re now close to initial completion at half a million pounds with a solid pipeline of investors moving towards the second stage. At this point certain patterns are evident which may be of interest to anyone planning a crowdfunding initiative.

First, the early commitments we received mostly came from people who already had some connection with Trampoline. This included customers, friends of shareholders and friends of analysts who’d written about us. These people were only one or two or steps away in Trampoline’s network so there were direct personal experiences and trust relationships. This provided the foundation for them to commit quickly and take advantage of the “early bird” share price.

Second, whilst we were planning the crowdfunding process I spoke to several established technology entrepreneurs for advice. As well as giving me their feedback and suggestions these people introduced me to other figures in the technology and entrepreneurial world, who in turn made further introductions. This cascade process, which was unanticipated, has proven to be immensely valuable. Not only am I learning from people who have created hugely successful businesses, several of them also want to invest or play a strategic role in Trampoline’s development. Having even one of these people involved in the company could be transformational.

Third, since we launched the initiative there’s been a steady stream of high net worth individuals certifying on the website and approaching us to find out more. I would estimate that something like two thirds of these people are professional angel investors, who have invested in multiple growth businesses and know exactly what they’re looking for. The remaining third are wealthy individuals who don’t have a long track-record of venture investing but they heard about what Trampoline was doing and were intrigued about the opportunity. These people, both the experienced angels and the first-time investors, have no previous connection to Trampoline either directly or through their network. Consequently there is a different pace to discussion as trust is established and information gathered. Access to due diligence materials is particularly important for these investors.

Fourth, and somewhat to my surprise, we’ve been approached by several venture capital funds who are interested in participating in the crowdfunding offer. I expected the model would be unattractive to VCs because we’re offering ordinary shares without the preference rights VCs usually demand. However I suppose it’s a good way for a fund to make a small bet alongside others, with minimal management overhead. But it remains to be seen whether these funds will actually come through and invest.

Those are my observations to date. It’s been wonderful to see so many people discussing what we’re doing. Right now I suspect opinion is split with a lot of people still sceptical that crowdfunding can work for a business like Trampoline. On current evidence I’m optimistic we’re going to dispel that scepticism.

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