From the Statue of Liberty to a lifeboat, crowdfunding pays off
From charity fundraisers to business start-ups, people are turning to crowdfunding websites to raise capital. But just what is crowdfunding, and how does it work? Jane Hanks finds out
When the lifeboat tow tractor at Berck-sur-Mer broke down, the volunteers tried to raise €3,000 to pay for repairs... but when traditional channels did not work they turned to the internet, and a crowdfunding website helped raise enough to do the repairs and save the station from closure.
In all, they received €5,110 and Berck-sur-Mer SNSM president Guy Lardé said: “We were able to reach a much wider public. Only about 25% of the money came from local people who already knew us.
“Half was sent by donors in France and the rest was international. We had money from donors in Patagonia, Lithuania, Austria and Belgium.”
Crowdfunding is a fast-growing sector in France. Figures show the amount of money collected through website platforms doubled in 2015, as 2.3million people helped finance charities or commercial projects.
The system allows individuals to give, lend or invest their money through a website without having to go to a bank. It is the financial world equivalent of Airbnb or BlaBlaCar but has origins going further back: the Statue of Liberty was funded in 1875 by 100,000 subscribers to sculptor Auguste Bartholdi’s project.
Among the best-known of the crowdfunding websites springing up are KissKissBankBank, MyMajorCompany, Indiegogo and Ulule.
Usually the website organising the collection of funds asks for a percentage of the sum raised if the pre-determined amount is achieved. If the sum is not raised donors get their money back. A pre-determined length of time is allotted to the project.
There are four main ways of raising money via these sites.
One is where a business may offer an incentive to invest, such as a company raising funds to manufacture a new product offering pre-orders at a favourable price.
If the appeal makes enough money, the company starts manufacturing and sends investors their product. Alternatively, investors may receive a gift once fundraising is completed.
The second method is a loan system. Donors are repaid within agreed terms, with or without interest.
Then, there is another classic business investment model in which investors effectively buy shares in the start-up business.
Lastly, funds can be donated, such as to a charity. This is how the crew at Berck-sur-Mer in Pas-de-Calais funded their tractor repairs.
The additional funds allowed more than just the repairs as the appeal helped attract new lifeboat crew members and train them.
“Our funds were low when we started the fundraising on MyMajorCompany. We are all volunteers, on call 24 hours a day every day, and on top have to find our own money.
“It did take a lot of energy to motivate and inform people and the media about the campaign and the three months were very stressful while we waited to see if the money would come in, but the result was positive.”
Funding in which investors are offered an incentive can help start-ups get off the ground.
One company which says it owes its success to crowdfunding is Wistiki, which was launched on MyMajorCompany in 2013.
Bruno, Hugo and Théo Lussato, three brothers from Lyon, came up with the idea of producing a device connected to a smartphone which could help people when they lost items, such as their car keys.
Their 90-day crowdfunding campaign aimed to raise €20,000 to begin manufacturing the device ... but they received pre-orders from 1,500 contributors amounting to €81,000, making them the biggest crowdfunding success for a hi-tech French start-up.
The extra money means their devices now bear the legend 100% Made in France and public relations manager Lisa Despeyroux said the crowdfunding success gave the company an amazing start: “It resulted in a huge amount of media coverage in numerous publications in France.
“The fact that hundreds of consumers had bought the product before it was even made showed the idea was good. It attracted investors who put €225,000 into the business and, in November 2014, Wistiki was launched at major retail outlets throughout France. In just two months 50,000 units were sold.”
Mrs Despeyroux says crowdfunding puts the company in direct contact with clients: “It gives us immediate market research information.
“We have launched a new product on the US market on Indiegogo. We discovered the most popular items are animal-themed, so this gives us valuable information about the buying public in the US.
“Our latest collection, made in collaboration with designer Philippe Starck, has been launched via MyMajorCompany in France and Indiegogo in the US.
“We didn’t need the money to start production. But, by offering it for a limited period at attractive prices on a crowdfunding site, we have been able to show our new items direct to the buying public and once again we have set a record for raising money in this way with more than €320,000.
“The great thing is it is the consumer who judges the product and is the best indicator of its popularity.”
Another start-up which turned to crowdfunding is Spartan Boxers, which has created anti-radiation underwear with silver thread to protect wearers against mobile phone and wifi radiation which, they say, could affect male fertility and cause cancer.
The two company founders, Arthur Menard and Pierre-Louis Boyer, are just 25 years old. Mr Menard says their crowdfunding project on Indiegogo, where they raised more than €14,500 – 189% of their target, gave them a win-win situation.
“It’s a good way to attract clients and create a community around your product. It’s a great way to start without investing too much. However, it is not easy. We spent six months working on our campaign.”
There are rules. MyMajorCompany imposes a deadline of three months to raise money and projects are carefully scrutinised before they are accepted.
If the total is not reached contributors get their money back.
The lending sector – sometimes called crowdlending – is by far the fastest-growing sector as the amount of money involved more than doubled in the year to 2015, from €88.4m to €196m.
Nicolas Lesur, founder of French market leader Unilend and president of Financement Participatif France, which represents crowdfunding professionals, says there are three reasons for the increase: “In 2014, the banks lost their monopoly on being the only institutions allowed to lend money, so this became possible.
“Secondly, lenders are attracted because they are in direct contact with the project they are loaning money to and feel in control of their money.
“Thirdly, it is part of the social phenomena like Airbnb, where the public deals directly with the public.”
A massive 98% of people who lend on Unilend are the ordinary public and not professionals and Mr Lesur said: “We have around 9,000 lenders who can put in money from as little as €20 and up to hundreds of euros.
“We take two days to approve projects and after that they can collect their money within five days.
“Our lenders like it because they know exactly what their money is being used for.
“There is a risk involved, of course, and we advise lenders to spread their money around and put small sums into several businesses rather than one big sum into one project.”
Mr Lesur said lenders tended to be, “mostly young people, under 36 years old, who have a small amount of surplus money”.
They see it as a safer way to earn interest than in a normal savings scheme, he said. “There is a great deal of mistrust in banks nowadays. The government, too, has given its backing to
crowdfunding lending and I think they see it as more stable than traditional banking.”
The investment sector has also doubled in size over the last year.
Mr Lesur said: “There are few investors so far, but it will come, I am sure of it.
“It is very exciting to work in such an effervescent sector which is really booming when other areas of the economy are in trouble.”
Crowdfunding does not always succeed. Across the vast spectrum of crowdfunding projects, 94% achieve their target according to the industry’s own 2015 statistics. The figure drops to 61% for those asking for donations with a recompense (as opposed to more charitable funding drives).
Blase, an artist who restores old paintings and then adds a humorous twist, was the first painter to put himself and his work on crowdfunding site Ulule. He wanted to raise €30,000 to find new premises when the owner of the Paris gallery where he exhibited his works sold up.
His project asked for money in three stages – and although he raised more than the €9,000 aimed for in phase one in just four days he did not
achieve his second and third goals.
Blase said: “As the first artist on the site it was already a bit of a gamble and I was delighted to get nearly €15,000 so quickly but I think the idea of putting it in three steps was confusing so that people thought the campaign was finished after step one.”
He says it is also hard work: “You have to set up your page and create a community around you who will then pass on the message to others often via social media.
“I think crowdfunding is a good idea as it is very hard to get money from banks but it isn’t an easy option.”
But Blase, who has sold one of his paintings to the London Paul Smith boutique in Bond Street, says he is not sure he is ready yet to try crowdfunding again. “I gave a painting or a T-shirt in return for donations but it still felt difficult to admit I was facing hard times and ask for help from other people.”
Property funds are building success
AS FRANCE pushes hard to get its construction industry moving again, crowdfunding is playing its own role with several websites pulling together funds to get building projects up and running.
The investment can be attractive, too, as the returns on projects already underway since 2014 have been in the region of 7% to 12% – although, as most advisers say, past performance is no guide to the future.
On one side are people with some extra cash that they want to put somewhere that will earn better than the bank, and on the other are medium-sized property developers who need to find funds to get developments moving.
The benefit for the lender, if there are no problems (and there are many pitfalls that they should research), is that they can get a return of up to 12% for an outlay of between €500 and €2,000 and over a period from 12 to 36 months.
Sites such as Wiseed, Lymo, and Anaxago have all paid out on projects started over the past couple of years with Wiseed aiming this year to finalise 70 developments totalling €40million of funds.
The returns for investors are high because the promoters are obliged by their banks to put up a large amount of their ‘own’ funds for projects and by using crowdfunding promoters can keep their options open by using their own funds to try other projects.
Before investing in a project, investors need to ensure that the development is far enough advanced that it will proceed.
That means having planning permission, building warrants and bank funds all in place plus the garantie financière d’achèvement to underwrite it and that a proportion of properties are already sold ‘off-plan’.
The crowdfunding site should also be registered as conseiller en financement participatif to safeguard their operations.
For their part, crowdfunding sites also vet the promoters they use and the Autorité des Marchés Financiers is alert for problems in the new market.