Entrepreneurs will love crowdfunding. Any doubters should take a close look at the £1 million raised by The Rushmore Group to fund their fourth members-only bar in London. The Rushmore Group found 143 individuals who invested an average of £7,000 each in exchange for a total of 10% equity. This investment has become the largest deal ever completed on the crowdfunding platform CrowdCube by a factor of five.
What is most interesting about this deal is not the level of investment but rather how it was structured. Chapter 17 of Getting Results From Crowds titled Equity Crowdfunding outlines the benefits of crowdfunding compared to other forms of financing. As discussed in the book, crowdfunding allows businesses to test ideas with the crowd, build a customer base and grow a support network ready to assist as needed. By offering bar tabs and membership to their private clubs, the Rushmore Group not only demonstrated demand for another private bar in London, but also built a customer base ready to attend an opening night.
It is amazing to think that they had nothing to lose by requesting funding from the crowd. If they reached their target then they knew that they would have the funds, a membership base and confidence in their idea. If they missed their target, they would be no worse off for trying.
Furthermore, the dream of being able to say “I own a bar” is one that many of us share and it is only through crowdfunding that 143 investors were able to make that dream a reality.
As discussed in Getting Results From Crowds, laws that maintain fair, orderly, and efficient markets prohibit crowdfunding in most countries. At present crowdfunding platforms need to adopt very specific business models to enable the public sale of debt or equity in privately held companies. However, legislative changes are on the way in some countries. For example, in the US the Entrepreneur Access to Capital Act amends the Securities Exchange Act of 1934 to allow crowdfunding for equity up to US$10,000 per investor. This legislation has been passed by congress and is currently being discussed by the US Senate.
Legislative changes will liberate private investors by allowing them to participate in the funding of private companies. As the Rushmore Group case highlights, there are both investors and entrepreneurs ready and waiting to make crowdfunding their preferred investment strategy.
But what do you think? Will entrepreneurs flock to crowdfunding? Or will crowdfunding be perceived as the investment strategy of last resort?
Image source: The Rushmore Group
