Crowd Rocking the Fund: From Marillion Band to the #UKCrowdfundingDay

David Drake |

Online crowdfunding as we know it started officially in the UK with the Marillion band in 1997. Fans of the rock group created the first recognized internet crowdfunding campaign, raising $60,000 to support the band’s U.S. tour. Sixteen years later, the UK is again championing crowdfunding with the first ever #UKCrowdfundingDay.

On November 1, Barry James will gather UK and global leaders in the industry to celebrate everything about crowdfunding.

Barry James is a recognized thought leader and voice of crowdfunding in the UK. He is a world-class entrepreneur with technology patents in many countries, including the UK and the US. He is also co-founder and CEO of Angel Revolutions, a cloud and mobile technology company.

Believing in an open and people-centered economy, James co-founded The Social Foundation in 2012. It focuses on  “Crowdonomics” research, education and policy initiatives.  James organized the UK's first national conference, “Crowdfunding: Deep Impact,” in February 2013. The sequel conference, “Crowdfunding: Deep Impact II,” will be on November 1, 2013, at The Royal Geographical Society, Kensington Gore, London,  back-to-back with the widely buzzed first UK Crowdfunding Day.

As an invited speaker at this event, I had the opportunity to sit down with Barry and hear his views on UK Crowdfunding Day’s beginnings and aspirations.

David Drake: Barry, you have become the voice of UK crowdfunding momentum to us in the US. How did you get started?Barry James: I saw a press release from our regulators and realized they were about to make a terrible mistake. I'd been a tech entrepreneur for a long time and was already interested in crowdfunding as a means to fund some of our projects. The press release really was an awful hatchet job. I remember one of the paragraph headings was “How to protect yourself [from Crowdfunding].” It said crowdfunders wanted to exclude everyone except “sophisticated investors.” It did a lot of needless damage to crowdfunding of all types here.

My partner Kay and I looked around at the devastation that the banking crash and austerity had brought and decided that something had to be done. Despite bailouts our monolithic banks have pulled up the drawbridge and are no longer lending to businesses. Here was a lifeline being spurned and destroyed when it was badly needed - and for no really good reason. I wrote an excoriating article on it for my column in Real Business magazine, but it gradually dawned on us that if something was going to get done, someone would have to take the lead. We looked around and found “four more fingers, pointing back” at us.

With a couple of friends we opened a small crowdfund and ran a fringe meeting on the side of a large entrepreneur's event, the MADE festival in Sheffield, which packed out pretty much overnight. Crowdfunding clearly worked here in the UK and there was evidently a great need for this. So we started work on what became Crowdfunding: Deep Impact, UK’s first national conference. It too was packed out.

We wanted it to be a think tank as much as a conference, and so we involved people from across all the major communities: investors, entrepreneurs and professionals,and  also academics and politicians. We knew that if we were to have any chance of winning a battle with our regulator then we needed to start to build a wide base of understanding and support.

That kicked off our involvement with Parliament and got the Westminster Crowdfunding Forum started. It was announced at the conference and started the following week.

David Drake: What are some of the chief accomplishments the UK has produced in the crowdfunding arena recently?

Barry James: The main thing is that it's growing steadily. The first, Crowdcube, raised £1.5million, most of it in just a day or so, for themselves on their own platform, and now is raising increasing amounts for others. There are a whole rash of new platforms coming out.

Angel's Den - our largest angel network - just launched its own platform. This gives me special pleasure as Bill Morrow, it's founder and CEO, spoke as “the opposition” at our first national conference. He spoke about why angel funding is better and what was wrong with crowdfunding! It's proved to be a very productive debate indeed, though, and now Bill is returning to Deep Impact to explain why it is a new paradigm for angel investing everywhere.

David Drake: How do you see the UK leadership and movement in equity crowdfunding as compared to other countries?

Barry James: I'm proud of what we have achieved together in engaging our Parliament and legislators. Barry Sheerman, the MP for Huddersfield, has a lifelong passion for entrepreneurship, so he saw the need and the potential straight away and has been pivotal, as chair of the Westminster Forum. We now have a real debate - and the regulator is sitting up and taking notice - from a starting point when the House of Commons library had never heard of crowdfunding and we couldn't get past the switchboard at the regulator.

I'm clear that Crowdfunding is a key part of a new digital-based economy, which is by nature open, inclusive and supportive, very different from the closed and controlling environment we've all been used to. This changes the ground rules and makes a huge difference. It would be a major mistake bordering on a disaster to legislate and regulate based on old assumptions and old rules made for another world rather than reality.

We need time to gather proper evidence and explore this new territory. I call this the “Haldane doctrine” because Andy Haldane, perhaps the brightest mind in the Bank of England, has acknowledged this paradigm shift and publicly advocated this approach. We're not there yet but we are making progress.

David Drake: What can our readers do to support your vision and what is your short term vision?

Barry James: Use it! Go out and find one or two funds that interest you - there are tons to choose from - and make some small investments or contributions. Experiment. Be curious, open and supportive and see what happens.

My vision is for an explosion in crowdfunding in businesses and communities across the nation. An explosion in what we sometimes think of as American virtues: self reliance, drive and determination to succeed. An opening up of the economy so that anyone who has an idea and enough skill and determination can create their own job by starting their own business - without recourse to a bank or other institution.

I think the potential is for a new kind of more democratic capitalism - “Capitalism rebooted” (which we'll be exploring from a new book on the subject at the Deep Impact conference in November), or individual capitalism, as leading VC Julie Meyer has put it.

David Drake: What is being discussed in the UK in regards to creating a new law that would make equity crowdfunding easier and faster?

Barry James: It's all in the melting pot right now. As I mentioned earlier there are two schools of thought, those who see crowdfunding as an evolution of business-as-usual and those who see it as a key part of the open, digital revolution. The next few months are crucial.

David Drake: My understanding is that even the equity crowdfunding platforms or Crowdcube and Seedrs can advertise their offerings today.  They can advertise their platform but not individual offerings.  Can you walk me through the restrictions in place today?

Barry James: Thats about right. To look at a deal you have to log into one of the platforms and take a test to demonstrate you're savvy enough to invest your money, however small the amount. Some people are dead against this but I think it's probably a reasonable compromise in the short term, at least until we know who's right. Are consumers sheep who'll be preyed on without tight regulation, or have we come a long way since the 1930s and does the openness of crowdfunding, the crowd and the open Internet make a significant difference? Can the many eyes - and wisdom - of the crowd make a better regulator than the regulator?

We've managed to kill off some stealth regulation, a completely unworkable £1,000 minimum rule intended to deter small investors, but there's much more to do.

Overall though the big issue is: Why would we base these decisions, which are crucial for our future, on assumptions rather than on research and evidence?

David Drake: What makes the UK such a powerful country in the equity crowdfunding world, as we see it as the strongest growth arena in the years to come?

Barry James: Equity crowdfunding is exciting and important but so too are rewards. It seems to me that the terminology is masking something really important. For this and other reasons people generally seem to be missing the fact that “rewards” crowdfunding (or “real” crowdfunding as one friend of mine insists on calling it) provides a great way to get a business or product started. It can then lead to growth and investment later. In fact this is a pattern we've started to see growing here. It makes perfect sense, of course.

If a business has successfully crowdfunded itself already, it can show that it's found a real market for a viable product - and much more - that makes it very investable. So investors are starting to beat a path to the door of some of these ventures here.

It has dawned on both entrepreneurs and investors that this route does not preclude angel or equity crowdfunding but rather dovetails with them, allowing the entrepreneurs to get a business started, and investable:

  1. Without incurring any debt

  2. Without losing any equity at seed stage

  3. With a full order book

  4. Fully funded

  5. With a crowd of eager customers who will vie to be your best advocates.

Initially these are almost exclusively deals - at seed or pre-seed stage - that angels would never even look at, because they're too small and too messy and too difficult at that point. But this can create an increasing pool of much more proven and investable ventures.

Some people think there will be a Google or Facebook of crowdfunding, but I think of it as a new dimension to the economics of  entrepreneurialism and finance based on new rules made possible by “digital,” open,” “social” and the Internet.

For that reason I wonder if we ought to try to rechristen “rewards” as “Startup Crowdfunding.”  One way or another, we are in new territory here.

David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City private equity advisory firm, and The Soho Loft, a global event-driven financial media company helping firms and funds advertise for investors. He is running the  Real Estate Investing and Leading Crowdfunding Conference in NYC on Nov 14, 2013. Listen to him speak together with Keynote Barry Sternlicht of Starwood Capital. Details of the event can be found at: https://thesoholoft-real-estate-investing-newyork.eventbrite.com/. You can also reach him directly at David@LDJCapital.com

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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