Crowd sourcing business funding

One of the little oddities about English law is that you can go and ask anyone you like to invest in your adventure.

You don\’t have to, as in the US, file paperwork and agree to certain restrictions. You can just ask people \”would you like to buy some shares in my company\” and if they say yes, take their money.

You\’re bound by the usual restrictions of course: doing what you said you were going to do, telling people the truth, reporting the accounts to them at the appropriate times and so on.

But there\’s no need to go through a public market or anything, hire huge numbers of lawyers and accountants. You can simply explain the idea and see what people think about it.

And I\’m rather wondering whether it might be possible to use this here internet thing as a way of raising that sort of funding.

I\’ve an idea in the metals field. Rare earths, not directly to do with scandium.

There\’s an obvious market need or niche. There\’s a technology that\’s well known in another part of the metals world. Lab work shows that it should work with rare earths. If it does it would cost some 10% of the current method. Global market\’s around $500 million a year (ie, this is what the old technology currently costs the people who use it).

Back of the envelope stuff suggests that £300,000 or so would be needed to properly prove the concept. £1 million or so to build a working prototype.

The basic metallurgy is, as I say, well known, there are several large industrial processes that use the halides to purify ores and metal salts: it\’s just that the halide metallurgy of the rare earths isn\’t all that well known.

Except, one of my customers, and a company that has agreed that this is an interesting idea worth pursuing and would work with us in doing so, is the world leader in the rare earth halides.

There\’s absolutely no point at all in trying to go to AIM or the TSE for this sort of sum. You\’d spend that much in getting a listing. It\’s all a bit off base for institutional investors. Mining investors like mines, not technologies. Technology investors don\’t like mining.

So I\’m wondering. What does anyone think about trying to crowd source this sort of sum of money? 1,000 people with £1,000 each? Or multiples of that per person if they desire?

30% of a new company divided among the financial investors?

There\’s the obvious point that the technology might not work. Or that someone else will get there first (although I know of no one working on it). Plus of course the distinct possibility that I\’ll entirely screw it up.

The thing is, I\’m absolutely certain I could, with a well crafted idea (and I do have another one which is much more in this sort of range and that might be a good one to start with) raise £50,000 or so through this blog under that sort of arrangement. That smaller idea being that there are no internet sellers of prescription glasses in Portugal or Portuguese. But it\’s easy enough (and I\’ve already got an agreement set up) to get people to manufacture to a prescription in China. And such glasses in China cost $10 or so (I wear them myself) and prescription glasses in a store in Portugal start at €100 a pair.

But what do you think about that larger sum? Or even the smaller sum?

Both are obviously ideas that have a high risk of total failure.

But tell me what you think.

 

41 thoughts on “Crowd sourcing business funding”

  1. Works for me, but I have a suspicion that it’s been done before. Can’t remember where, though.

    Either way, it would be more fun than Betfair and I’d get an annual cup of tea at an AGM!

  2. Sounds like an good way to get funding for either ventures.

    I would want details and timescales of potential returns before committing anything though.

  3. I’m not sure you’ve got your law right though Tim, at least if you are talking about people buying shares in a company. I think that FSMA requires you to produce a prospectus if you are offering shares to the public (it’s ages since I looked at this so I could be miles off the mark). Cue arguments about what constitutes the public, etc.

    That said, I could be persuaded to part with a monkey for either idea

  4. @Gutbucket I think that all applies to shares that will be publicly listed (i.e. if Tim is setting up a plc). If Tim is just privately selling shares in a standard Ltd company then all that is required is the standard limited company docs (with companies house etc.) that states the shareholders. IANAL etc. just a sole trader who has flirted with the idea of a Ltd Co. set up.

  5. Spicsavers?

    Sorry. That’s terrible. I couldn’t resist.

    As for the investment – I’m afraid I don’t have any money. Sounds good though.

  6. Financially, my guess is that you may struggle to lever a blog into a million for investment capital unless some of your readers are very well-heeled.

    Practically, I think we’d all want to see a decent prospectus. In my case, ‘decent’ means ‘including worked-out sums based on sourceable figures so far as is possible’. (Subject to employment deliberations my side, and a good business plan your side, I may be able to release a small amount of funds.)

    I’d say that the Portuguese specs idea is probably a better one to start with: get an idea of the issues involved in raising capital from investors. I bet there are regulatory issues regarding glasses to work through, but hey, you’re the resident. Why try to run before having a go at walking?

  7. Plus Tim you should not miss the opportunity to piss Murph off with a bit of tax planning for the venture!

    Tim adds: There’s a temptation there alright. But to get around the trading restrictions on glasses that Philip mentions it would need to be a plain vanilla UK Ltd.

    It’s legal for a UK company to sell specs on the internet in the UK. Thus it is legal to do so for a UK Ltd in Portugal. And I’ve bought such, from a UK Ltd and a US Inc. But it isn’t for a Portuguese Lda. And an LLP would be horrible for investors, even if great for me (not resident in UK, see?).

  8. Idea #1 depends on finding 1,000 people willing to drop £1k on an idea they don’t really understand. They may be out there but when it comes to separating fools from their money the fools are always spoilt for choice and your brilliant surefire scheme will be competing with every crackpot and shyster under the sun.

    The solution is to focus your offering on people who have some idea of what you are proposing. The reason isn’t so much to make it an easier sale based on knowledge so much as the fact that these people will be more focussed on the subject. That doesn’t mean you have to speak to large companies, but my bet is that you would raise that king of money from one or two largish private investors rather than 1,000.

    Idea #2 works until some Chinese optical manufacturer buys a Portuguese dictionary and a web authoring tool.

  9. Count me in. I can go to up to 5 thousand, prospectus in hand and someone to explain all those economics, politics and rare earth metals things contained therein. Young Tim has already proved that I’m a small fool as I parted with a small sum to buy his book about rainbows or some-such. The question is now how big a fool can I be? As long as lighthouses aren’t involved anywhere. I hate lighthouses.

    Cheers,
    Fatty

  10. Tim, in the UK you want to make it EIS compliant. Then UK residents will get a tax credit on their investment (£1000 in, £300 off the tax bill) and then dividends and capital gains is tax free.

    There are investment networks that specialise in investing in EIS companies. One is London Business Angels:

    http://www.lbangels.co.uk/

    I’d say you should focus on the metals plan. It’s your life experience. Selling specs because of your uniqueness in living in Portugal isn’t really making the best of it.

    Get it EIS rated, put a damn good well-worked-out plan together and I’m pretty sure you can find dobs of money from various people for it.

    Tim adds: Kay Tie: can you give me your real email addy? Like to talk to you more about this.

  11. I agree with many of the comments above. Let me know if you progress this idea further, I’m sure I could manage a grand or two.

  12. Having done this sort of thing in the past, the angel investor route is a much better idea. Get someone to cough up the seed funding based upon a detailed business proposal and a firm plan with timescales and customers attached.

    With things in the government, corporate bond, equity and commodities markets as fucked up as they are there are a lot of people with money burning a whole in their pockets looking for a decent non-sexy return on investment.

    We had one guy turn up that had just sold a bunch of coal vessels doing the Richards Bay to ARA run and had ?5 million he was looking at using as angel investing in a number of opertunities.

    Surprising what turns up. This was back in 2001 though so things may have changed since then.

  13. The volatile halides game, is it? But I sell technology ideas, I don’t buy ’em. Best of luck to you, though.

    P.S. how strong is the Portugese opticians’ union?

  14. EIS tax breaks can be valuable, but the regulations can be a complete pig, especially where there’s non-UK activity.

  15. Idea #2 works until some Chinese optical manufacturer buys a Portuguese dictionary and a web authoring tool.

    This. It’s never a good idea to get involved selling this kind of stuff; in the end you always lose money, and your profit margins go to zero.

    But idea $1 is great. I think I know a few people who would be willing to invest in it.

  16. Not remotely interested in the specs thing.

    For the metals thing, I would need to understand how it works, which implies time spent so I would want to invest a larger amount to make it worthwhile spending the time. Maybe you should be looking for 30 people with 10k?

    Come to think of it, why isn’t the Scandium King sitting on 300k? Why do you need investment?

  17. I’d take your word on the chemistry Tim, given a reasonable minimalist business plan etc. I’d have to look at how it works w.r.t. Aust law – but I’d most likely be in for a thou. Actually it’s the sort of thing that could work really well as a crowd-sourced fundraising, simply because a lot of people might take it on as a punt.

    I hope you’ve considered the admin costs of communicating with a thousand shareholders though (I’m sure you plan to use email etc, but sometimes you’re required to send hard copies for certain things), plus bear in mind if it goes pear shaped at least a few of those thousand are going to drag you into court. Even if their complaint is baseless.

  18. Unfortunately, in terms of verifying the process, I’ve lost contact with my “friend” (read – lapdancer) who was finishing her PhD in chemistry. Now that would have been an interesting conversation to have with her sitting on my lap….

  19. Is sounds a good idea the metal one not the glasses.
    I would only invest if you were to concentrate on just one. No offence but sounds too much.

  20. I’m suprised that you work in the metals trading industry and don’t know a few people personally who would be willing to put in 50-100k from their own bank accounts.

  21. View from the Solent

    I’m potentially interested in the metals idea. Look forward to seeing more when you’ve worked through the details.

  22. @Tim: A note of caution. Soliciting investment in a new business venture is by no means the legal free-for-all you seem to imagine, at least in the UK, and if you plan to supply your business plan via this blog out to anyone who asks for it, and if you don’t have your business plan approved by an authorised person, or if you yourself are not an authorised person, you could be committing a criminal offence, not to mention the fact that any agreements you enter into may not be binding, in addition to opening up the possibility of financial redress against you.

    The rules aren’t rocket science, but they have to be observed. You need professional advice, which is certainly plentiful though not necessarily cheap.

  23. I think you might want to get every potential investor to certify that that he/she is a “sophisticated investor” and hence deemed to be fully capable of making his/her own decision without the need for advice – that includes the ability to read a Prospectus (I am not sure that one has to read it without falling asleep during the legal gobbledygook, but some regulators try to suggest that is the case). The EU have different standards for “retail investors” and “persons” who are investing large amounts. A Private Company, which is probably what you want, is limited as to the number of shareholders it can have (used to be 50, but probably different by now). Of course one could get round the number limit through a pyramid of private companies but this sort of thing smells of New Labour.
    Secondly, you want a guy who can explain the Chemistry in terms that can be understood by somebody without a D Phil in the subject.

  24. Addendum: read the back page of the weekend FT Money Section.
    Maximum €5m 150 investors.
    You might just possibly get bank funding if you had €5m of equity backing, but a combination of a JV with the customer and your fans may be needed to get the numbers acceptable to bank

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