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Shared goals: aligning the interests of entrepreneurs and investors - YCF 12th annual conference 2013
Wednesday 17 September 09:30 to 16:30
Westerwood Hotel and Golf Resort, Cumbernauld (22/04/14) ...more
YCF Guide to Finance for Young Companies - The website version of YCF’s Guide to Finance for Young Companies is now available at www.ycfguide.co.uk (24/09/13) ...more
Download a sample copy of YCF! - This illustrates the typical coverage and style of our monthly publication tracking early stage companies in Scotland. (18/12/12) ...more
Young Company Showcase 2013 - Eight young companies were exhibitors at the YCF Annual Conference this year, and the Showcase publication describing their businesses can be downloaded here. (24/09/13) ...more
YCF Annual Conference 2013 - speakers' slides - The slides from the presentations at this year's conference 'Starting and growing innovation-based businesses' are now available for download. (24/09/13) ...more
LINC Scotland members increase investment in early stage companies - LINC Scotland members invested £13.76m into Scottish early-stage companies in 2012 – a 13% increase in investment on the previous year. (15/03/13) ...more
LINC Scotland appoints Jock Millican as chair - LINC Scotland has announced the appointment of Jock Millican as the new chairman of the national association for business angels in Scotland. He takes over from Peter Shakeshaft who has chaired the organisation since 2006. (06/05/13) ...more
Crowdfunding breaks financial barriers for businesswomen - Women are more successful at crowdfunding startup and growth capital than they are at securing traditional forms of financial support. Statistics also reveal that women are actually better than men at raising the money they need from the crowd. (15/03/13) ...more
Clear Returns - We promised the young companies which exhibited at the 2012 YCF Annual Conference that we would report on their progress during the year. Vicky Brock of Clear Returns, which has developed software to enable retailers to manage product returns, has give the following update on her business. (15/03/13) ...more
UK Steel Enterprise backs FUELlink Systems - Bellshill-based FUELlink Systems is using an equity investment from UK Steel Enterprise (UKSE) to push ahead with innovative new technologies. (15/03/13) ...more
YCF online archive - YCF's searchable online archive, with just under 1,200 articles from previous issues dating back almost eight years to November 2004, is now available to subscribers on a six month trial basis.
(16/10/12) ...more
The Risk Capital Market in Scotland 2009-2011 - This study into the Scottish risk capital market was carried out by Jonathan Harris of Young Company Finance and Professor Colin Mason of the University of Glasgow and is the fourth such report in a series dating back to 2001. Download the full report here. (18/12/12) ...more
Sign up to receive YCF's e-bulletin! - Our monthly e-bulletin gives news about the wider young company landscape, for which we do not have space in the monthly newsletter. Sign up now - there is an unsubscribe option if you change your mind later. (28/07/10) ...more
New life sciences fund launched by Rock Spring Ventures - The £50m venture capital fund will focus on early-stage life science and health technology companies. (24/01/13) ...more
Realignment: UK Life Science Start-up report 2012 - The third report in this series by BioCity Nottingham and Mobius Life Sciences Fund covers the five year period from 2007 to 2011, and makes comparisons with the five year periods covered by the previous two reports. (24/01/13) ...more
Elite! - The subtitle of this book by Floyd Woodrow and Simon Acland is ‘The secret to exceptional leadership and performance’. (24/01/13) ...more
Early stage investment: where are we now? - Speakers' slides from YCF's 10th annual conference on 13 September are now available for download at the foot of this article.
(05/04/12) ...more
VCs and venture capital - The British Venture Capital Association (BVCA) recently reported figures for the activity of its members, covering 501 UK-managed funds.
(16/07/12) ...more
YCF Young Company Showcase 2012 - Download here our showcase publication, which is intended to spread the word about a few young companies by giving a short summary of their business, and focusing especially on the markets they are trying to reach and the ways in which they plan to reach them. (28/09/12) ...more
mLED builds on market feedback - Braveheart Investment Group has led a new funding round in mLED, a leader in microLED technology. (16/07/12) ...more
People in the news - This page gives news of people involved in the early stage fast growth company sector in Scotland - appointments and promotions, awards and recognitions. See the latest news here, and let us know of any items we could include! (27/05/10) ...more
Investor news August 2012 - Preliminary reports from Braveheart Investment Group plc and Scottish Equity Partners (15/08/12) ...more
Aquila BioMedical offers novel CRO approach - Aquila BioMedical announced recently that it has secured a SMART grant award to develop further one of its specialised tests.
(16/04/12) ...more
Celtic Renewables plans to produce better biofuels - Celtic Renewables was formed to commercialise a process for producing a superior biofuel (and other high value sustainable products) from the by-products of biological industries.
(16/01/12) ...more
Jim McColl OBE – Going Global - Those who have heard Jim McColl speak before would have known what to expect, but for those who had not had that opportunity, and particularly for the young entrepreneurs in the audience, his presentation at the iVenture Tuesday event on 29 May at the University of Strathclyde was inspirational. (15/06/12) ...more
EPIS final year - The sixth annual meeting of the EPIS network was held last month, and as usual brought together entrepreneurs who have participated in the programme, investors, mentors, and other supporters (01/02/10) ...more
Recent awards - Young companies in Scotland have been actively competing in a number of competitions in recent months, many of them achieving notable success. (12/07/12) ...more
Business Forum Scotland June 2012 - The final event for the current session in the East of Scotland saw a good turnout (despite the tempting weather outside) to hear two very different companies discuss their business issues. (03/07/12) ...more
Crowdfunding – new panacea or future train wreck? - LINC Scotland’s Nelson Gray - European Business Angel of the Year in 2008 - looks at this new trend and wonders whether it can deliver all that it promises.
(30/11/11) ...more
LINC and YCF join forces - LS Ventures, LINC’s new commercial subsidiary, has signed an agreement with Young Company Finance to license all YCF’s activities in Scotland.
(02/02/11) ...more
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Crowdfunding – new panacea or future train wreck?
30 November 2011
LINC Scotland’s Nelson Gray - European Business Angel of the Year in 2008 - looks at this new trend and wonders whether it can deliver all that it promises.
There is an increasing level of comment in magazines and blogs about crowdfunding, and the increasing number of websites offering to connect entrepreneurs with potential funders.

As its name implies crowdfunding aims to secure funding by persuading many investors (the crowd) to put up small amounts of cash. Entrepreneurs can set up a profile on a crowdfunding site that explains how much money they’re seeking and what it will be used for. Investors pledge amounts over the web, often paying using PayPal. Funds are usually only released by the web site to the company once the full amount asked for has been received. If the full amount is not secured, the funds are returned to the would-be investors. The sites make their money by taking a percentage of the investment.

The idea evolved in the USA, with sites such as ProFounder.com, Peerbackers.com, Kickstarter.com and IndieGoGo.com offering ‘perks’ to individuals willing to fund a creative project. In return for ‘donating’ money to the projects, individuals would receive tickets to the event being promoted, advance copies of a book being written, or one of the products being produced. Relatively small sums of money were involved, ranging from as little as $1 to a thousand or two.

While most projects look for modest sums, some have generated huge interest and have been well oversubscribed. Joshua Harker was seeking £500 to develop his skull sculptures. To date he has secured £52,611. Tom Gerhardt and Dan Provost wanted $10,000 to produce their tripod mount and stand for an IPhone. They secured $140,000, while Scott Wilson secured $80,000 in one day, and just under a million in 30 days, to launch what is now a global branded product, TikToK. Originally Scott asked for just $15,000. All that funding, and no equity dilution, just people paying in advance for products yet to be created.

Increasingly, crowdfunding sites are offering the opportunity not just to donate to a project in return for early access to a product, but to make real investments through the purchase of real equity in a business.

As UK based Crowdcube puts it “We want to give ordinary people the opportunity to become an armchair Dragon and build their own investment portfolio supporting exciting new British businesses”, and “By attracting lots of investors who invest smaller amounts of money into a person, company, product or idea you can bypass the traditional ways of raising venture finance.”

Crowdcube appears to offer EIS tax relief on at least some of the investments it lists, provided the regulatory minimum £500 is invested.

This has led to some speculation about the legality of offering ‘real’ equity investments on a crowdfunding basis, particularly in the UK and the USA where on the face of it there are significant problems under Financial Services regulations. The Crowdcube website gives some insight into how they have found a way to work around the regulations (http://forum.crowdcube.com/viewtopic.php?f=8&t=186).

In the USA the Entrepreneur Access to Capital Act which has just been passed in the House would make it legal for small businesses to raise capital through crowd funding. The legislation allows businesses to use crowd funding to sell unregistered securities as long as the total amount raised is $2 million or less. The bill also limits individual investments to $10,000 or 10% of the investor’s annual income. Intermediaries will need to register with the SEC and undertake background checks on those raising money as well as certifying potential investors and educating them as to the risks. The Federal bill, if it passes the Senate, will pre-empt state regulation.

Perhaps however the present and understandable focus on the legality of the process is diverting attention from more fundamental issues about the impact crowdfunding may have on the future prospects of high growth potential companies. After all, for many businesses attracted to crowdfunding platforms it’s really just an efficient extension of the traditional method used by the vast majority of start ups to obtain cash from friends and family.

The real issue may however be what happens next? If it is found that the company really is of high growth potential, and needs to go for further significant funding rounds, will the existence of initial crowdfunding within it cut it off from angel or VC funding?

A company that recently secured equity funding through Crowdcube stated that “we raised £75k from 82 investors”, while another company has stated elsewhere that it intends to secure £225k over the next two years, from a minimum of 90 investors. How are angel and VC investors likely to react when they are faced with such a large pool of shareholders, all of whom, as owners, will presumably expect to be consulted over any new investment? How do you get hundreds of people, possibly from many different countries, to sign up to an investment agreement, agree to short notice periods for meetings or secure a quorum for a meeting?

Small companies can have fairly large numbers of individual investors. Most companies securing angel funding in Scotland end up with a syndicate of angel groups supporting them, with each group potentially having a dozen or more investors. However these groups have internal mechanisms for managing their members, and all commit to a well understood investment agreement containing all the usual investor controls, minority protections and management warranties. It is of course the possibility of perhaps being able to avoid the negotiation of such terms, as well as the justification of the valuation and being subjected to a process of due diligence, that appears to make crowdfunding so attractive to would be entrepreneurs. Unfortunately the lack of such documents appears likely to be most off-putting to investors at future rounds of funding.

There are some great things happening with the help of crowdfunding around the world, and many more entrepreneurs will hopefully be able to see their dreams and ambitions fulfilled as a result. It is not however an alternative to angel or VC funding for high growth potential companies, but rather a new channel for those for whom such funding sources are not, and never have been, appropriate. Those very few companies who have the potential to become companies of scale, and are likely to need access to larger amounts of funding, need to consider very carefully whether they really should take what may appear at first sight to be the easier path, but which may well lead them to the dead-end of an uninvestable proposition.

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