Business Day: Crowdfunding generates ideas

Fraser Doherty has made use of crowdfunding to further his brand. Picture: Scott Taylor

The process, which involves generating money from large numbers of people over the internet, has exploded across the financial world since starting up in the early 2000s.

The Crowdfunding Centre produced a landmark report in May entitled The State of the Crowdfunding Nation, which found more than £215 million had been pledged globally in the first quarter of 2014.

There are four broad types of crowdfunding – donation, reward, loan, and equity – according to up-and-coming city firm LendingCrowd, which will give a talk at the Edinburgh Business Day on  Thursday.

Firms offer rewards in exchange for contributions, or shares for capital investment, while crowdlenders offer investors a monthly interest rate in return for funding a portion of a borrower’s loan.

Among those using crowdfunding is self-proclaimed “Jam Boy”, Fraser Doherty, who tasted success when he used his gran’s recipe to set up SuperJam at the tender age of 14.

The Edinburgh-born entrepreneur, who was made an MBE this year, has launched a campaign through  CrowdCube to generate £250,000 to reposition SuperJam as a luxury brand. He has already raised more than £105,000.

The 24-year-old said: “In theory SuperJam could have raised this money from a bank but what is cool about crowdfunding is that when 300 people make a small  investment in your business, they’re not just investing their money – these new shareholders will bring an abundance of new ideas, energy and contacts to my business.”

Sunglasses brand Tens raised its £9400 target in the first two hours of its crowdfunding campaign.

Napier University graduates Tom Welsh, Marty Bell and Kris Reid, set out to raise enough for their first bulk sunglasses order on website Indiegogo earlier this year, but within 72 hours investors had pledged more than £100,000.

Tom, 26, said: “Crowdfunding enabled us to start a real business.

“That said, it is a risk as if you don’t meet your target then it is a public failure which is associated with your brand.

“It was good for a product like ours as it is a great way to test the water to see if people are interested.”

Tens raised £366,000 by the end of their two-month funding campaign, which has allowed the creators to work full-time on the project and to set up an office in  Glasgow.

Aim to increase innovative finance

Robin McElroy, director of the investment programme at the government-owned British Business Bank, will deliver a speech on innovative finance at the Edinburgh Business Day on Thursday.

He said: “The British Business Bank aims to support economic growth by making finance markets work better for smaller businesses across the UK.

“Of the £829m of new lending and investment we supported in the last year, over 60 per cent was through providers of new and diverse forms of finance, including debt funds, peer-to-peer lenders and lease finance providers.”

Mr McElroy added: “The British Business Bank wants to increase both the level and diversity of funding options and, as a recognised centre of expertise for smaller business funding, to build awareness of what is available in a market for alternative finance which grew 91 per cent in the last year.”