With the recent remarkable successes at Kickstarter,(read more about some stories here) it has become clear that crowdfunding (raising money from a large crowd of people, often through the Internet) can be used for significant investments. Kickstarter however is best known for funding artistic projects and new products/gadgets and does not give a share of profits to participants. Can you also crowdfund a business plan and share your profit with your investors? Some entrepreneurs from The Netherlands think so and they started Symbid, a platform for crowdfunding businesses. To find out whether this really works, I interviewed Aernoud Dekker, CEO of SellanApp, one of the first companies funded via Symbid.
How did you get to know about Symbid and what made you decide to try it out?
I got to know about Symbid because I have been involved in Npex, a marketplace for ‘illiquid’ (not easily tradeable) investments. Since people who invest via Symbid become owner of not publicly traded shares, it seemed interesting to list these shares also on Npex. At the same time I was working on the plan for SellanApp, a platform for crowdfunding Apps. It seemed only natural to practice what we preach, and try out crowdfunding.
What are in your view the advantages of crowdfunding?
The main advantage that we saw for SellanApp is that each investor becomes an ambassador that will help to get the word out as soon as we launch our project. They also provide valuable feedback, for instance through the blog that Symbid provides for our project. The third advantage that surprised us a little bit is that some Symbid investors were willing to invest thousands of euros. We did not expect this initially. Symbid performs a due diligence after a project is funded, but the investors themselves have not seen much, yet they trust us with their money.
Did you see any risks from using crowdfunding?
Crowdfunding as an idea has great advantages but the devil is in the details of execution. For instance, how do you work with an extremely large group of shareholders in practice? And from the investor side: how do you know that the idea owners use them money for the intended purpose, and what is keeping them from using the money for a long holiday. For Symbid specifically it is difficult for founders that there is not much time pressure on investors (red: there is a time limit of 365 days).
We managed the risk of not raising enough by using a hybrid approach: only part of the required funding was collected via Symbid. The rest was collected with ‘regular’ informal investors. The hybrid approach works great because both parties strenghten each others’ trust. The informal investor likes to see traction from the crowd, just as the crowdfunders would like to see a head start from business angels.
What was the timeline for getting your project funded on Symbid?
We had the idea and the name for SellanApp already in 2010, but I did not act upon it because I became involved in introducing Groupon. In summer 2011 we picked up the idea again, and I decided with co-founder Milan to go for it. Around September 2011 we placed it on Symbid. As said above we did not know whether crowdfunding could be used for the full amount of funding that we needed. Therefore we choose a hybrid approach: we decided to raise € 50k via Symbid, and raise the remainder (about € 100k) through informal investors. Symbid added a special ‘angel account’ feature so that we could also show the amount of capital pledged by informal investors on the Symbid website.
And how did it go?
Initially it went very slow: we were stuck for a long time below 50%. Luckily we used the hybrid approach and kept communicating with informal investors. In January 2012 we got close enough to our financial target with the informal investors. We informed our Symbid followers that we would close in a few days. In other words, we added a deadline. Suddenly in the last week we sold out on Symbid: more than half the money was raised in the last week.
Why do you think was SellanApp successful in getting funded?
The most important thing that we did right was that we organized our own roadshow. After putting the idea on Symbid, we did not sit and wait. We approached investors and media through our network, and organized events such as a SellanApp live event. This is very important: somebody has to do publicity, just being on Symbid is not enough.
One other thing that we did differently from other ideas is that we choose a very realistic valuation for our company. It was a first round and we could not show a lot to investors yet. We choose a valuation around € 250k and this definitely helped, both on Symbid and with informal investors. We kept control by using two classes of shares.
What is currently your connection with your crowd of funders on Symbid?
As mentioned before, I really appreciate the feedback we get from them, for instance via the Symbid blog. We try to keep them informed as much as possible. At the moment we have not officially launched yet, but we try to publish something every week on the SellanApp blog, for a example about a new deal we made with Paypal.
How do you report to your investors? Do you do this directly?
After the funding was closed on Symbid, a cooperation was founded with all Symbid investors as a member. The cooperation has three executive officers and I report and discuss with them, and they inform the members. For us this arrangement works well in practice. It would be impractical to directly talk to all the investors and this way the executive officers can represent their interest. I believe that setting up the right governance structure is important for the success of crowdfunding. We noticed that many of the crowd investors are not aware of all details of the investment they hold. This way their interests are being guarded by three well-informed officers.
What is next for SellanApp?
Currently we are testing our platform with a few producers of apps. We want to launch our platform in September and by the end of 2012, you should see at least one of the apps from our platform in the App store.
Want to know about other projects from Symbid? Five projects have been funded and these are listed here.
In case you are interested what other crowd funding platforms exist, there is an organization for accreditation of crowd funding platforms. Check their page to see which platforms have been accredited.