Standing out from the Crowd

Standing out from the Crowd




The investment finance ideas you wish you'd had….

The investment finance ideas you wish you’d had.

Crowd funding has been creating a bit of a buzz in the past few years. In simple terms, it’s just a syndicated loan, put together via a software platform –in itself, nothing new. However, sites like Kickstarter and Funding Circle can allow anyone to raise funds for their brainchild.

On a personal note, the medium not only allowed my favourite musician Amanda Palmer to raise the necessary capital in 2012 to fund an album and art book - her innovative method of financing also increased her public profile massively. Her Kickstarter campaign had a target of $100,000; over 24,000 backers ensured that she came away with $1,192,793 at the end of the campaign, almost 12 times her aim.

Crowd funding had allowed the public to finance a product they believed in and cared about. Last week, Palmer released her debut novel, “The Art of Asking”, explaining how she has asked for help in more than just the financial context, which I can’t wait to read.

However, it could be argued that the music industry was ahead of the game with regard to crowd funding. In 1997, fans of the British group Marillon raised $60,000 through a fan based internet campaign to fund an entire tour of the USA, without any involvement from the band.

Another notable example of crowd funding in the entertainment industry would be when Scrubs star Zach Braff raised $3.1 million from over 46,500 backers in 2013 to create the feature film ‘Wish I Was Here’, which premiered at the Sundance Film Festival.

The highest reported amount raised by a crowd funding campaign was Star Citizen, an online space trading and combat video game which to date claims to have raised $61 million.

Commercial Director of Owl Finance Zed Lorgat feels that although the likes of Kickstarter and Funding Circle have become a huge success, funding great start-up ventures like 3Doodler and the Oculus Rift, there are obvious downsides.

“The major con - possibly the fear of it being short-lived, short gain, and of course an extremely high ‘red – beware your investment could go down’ colour if measured on a risk factor scale,” said Zed.

However, there is an upside. “The main pro, for those searching for funds it has become a widely available and popular way of funding new ventures when banks and traditional funders have closed their doors.

“As for investors, they have rushed to invest in order to achieve a higher return on their cash which are clearly unappealing in more conventional markets.”

Zed feels that this newly crafted industry is part of the whole shift in the financial services arena and that the high risk to reward returns are an obvious attraction to any individual or even institutional investor.

Zed’s favourite examples are fundraisers like www.milaap.org.

“Why?” Zed said. “They help to make a real difference to peoples’ lives, especially those less fortunate than us.”
“Small crowded funded loans, instead of or alongside charitable giving, which could potentially change an individual’s life by helping them gain education, better living amenities, and healthcare.

“The best thing about it? The receiving person feels independent given the opportunity to actually pay the loan back when they are able to do so. That same loan can go around again… and help someone else.”

Real estate crowd funding is the online pooling of capital from investors to fund mortgages secured by real estate, such as redevelopment of distressed or abandoned properties, equity for commercial and residential projects and home buyer down payments.

Ashley Ilsen of Regentsmead described cases where developments have been funded by crowd funding

“A recent example I saw was a block of flats in Godalming, Surrey,” he said. “We welcome the competition, however slightly concerning given the levels of expertise a development lender needs, especially in terms of releasing funds in tranches, liaising with surveyors and solving any legal issues.

However for the time being, he thinks crowd funding will remain the flavour of the month.

“A true test of a good lender is getting funds back and what to do when there is a default,” he said. “When the first investors (inevitably) lose money on a crowd deal it will start turning up the heat on this sector.”

The future could hold some issues for crowd funding, such as inevitable attempts of fraud. However, it would appear that for now, crowd funding is here to stay, but its impact on traditional methods of funding remains to be seen.  

Leave a comment