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Blog - Category: Raising funds

A crowd of people

If you have a business idea and need funding, if you need capital to grow your business or if you need to raise finance to begin on your business dream then you know all too well the difficulties of finding that money. For a long time, there have been few lenders with their hands on large amounts of money who are very reluctant to give it out unless an almost guaranteed return is likely. This had led many people with great business ideas quitting or not even beginning their businesses.

I have been in this situation myself very recently. I needed to raise £10,000 to fund my first order of stock to begin trading. After trying several banks, regional development agencies and even the Dragons’ Den I decided to try a different approach. Recently, there has been a new type of funding which appeared to have flipped the idea of few lenders with big money on its head to have a large number of lenders with just a little amount each. I’m talking about crowd funding.

What a great idea, I thought to myself. If a thousand people just give £10, then I’m in business. £10 is not a lot of money to invest and what a way to get going! I began looking a well-known crowd funding website to see if my ideas could fit into what they already had. It did. Then I looked to see if people had raised similar sorts of money to what I needed. They had. Great! I contacted the crowd funding website and asked to join. Following a few simple emails with details I was on, but there were a few things that needed to be done first.

Crowd funding from the business owner’s viewpoint

To start, you need to give people an incentive or reward for funding you. No problem. I gave rewards for a donation from £10 to £500 including hugely discounted products, free products when they are launched and even invitations to launch parties and events. Next you needed to put your pitch together. The best way I saw to do this was with a video. So I put a short video presentation together which included me on camera, animations, photographs and explanations of who we are and what we do. It was my first attempt at that sort of thing but I thought it was pretty good. That was then posted along with a written version and additional photos down below.

The final thing I had to do was to invite people I knew to use it. Wait, what was that? I had to get people I knew to fund me through this site? ‘Yep’. Isn't that just another way of asking friends and family to fund you? ‘Yes, kind of’. But don’t you take five per cent of the funding raised? ‘Yes’. Why don’t I just ask my friends and family direct for the funds and cut out the middle man? ‘Well, you can invite all your friends on your social media sites to invest too’. Oh, OK.

So I posted and invited all 1,884 friends I had on Facebook to come and have a look at the site. They could pre-order the products and get great rewards for helping to fund us. No response. OK, I’ll keep posting with different ways of getting them to look featuring the different products. Nothing. Hang on; I had products that 1,884 people wanted to be friends with me to get more information about. I have emails asking when they would be for sale and where they could get them. So something was wrong somewhere.

Crowd funding from the investor’s viewpoint

It wasn't until then that I decided to take a step back and look at it objectively and so I decided to look at the site from an investor’s point of view and then fund myself.

Well to start with, if people didn't know that I was on there and were just browsing to see what they might like to fund, then me being on page 13 was a problem – especially since a lot of the earlier pages have people who had already received their funds. So why was mine still back on page 13? Not a good start.

Then I went direct to my pitch. It looked good even though the video might have been a little cheesy. So then I decided to fund myself. Just £10 to see how it went. Hmm, how do I do it? Right, click ‘fund now’. OK now enter how much I want to contribute. OK, £10. Select my reward. OK, I’ll select the £10 reward. ‘Invest now’, £10.56 (£0.56 PayPal charges), that’s a bit annoying. Oh well, ‘Pay Now’.’ Pay with your PayPal account’? Well since I'm the only person I know in my family with a PayPal account I decided to see what happened if I didn't have one. ‘Don’t have a PayPal account’, please fill in these details which PayPal will collect and keep in accordance with its privacy policy. Hmmm, do I want to give them my details if I'm not a member? Well what are they asking for; Name, address, Email, Telephone, Card details. If I didn't know PayPal and had used it before then I'm not sure how happy I would be giving these details over. But I went through with it and finally came out the other side having invested in myself and realising that it is not as easy as it could have been.

A close friend asked if he could help so I sent him on the crowd funding website to fund me and get a reward. After a little while he called me and asked if he could just wire me the funds into my bank account as it was far too complicated. Not very good at all.

Not quite the Holy Grail?

What I have learnt from my experience with crowdfunding is that, unlike Kevin Costner’s ‘Field of Dreams’, just because you build, it doesn't mean they will come. Inviting friends and family to fund you through it is not very straightforward and asking ‘friends’ on your social media sites is like taking a horse to water. I am sure it has helped people find funding before but be aware that it is not the holy grail of funding it is sometimes made out to be. What did it for me was to re-evaluate my business plan and financials and approach yet another few banks. One believed in the business and released funds. The old ways won out this time.

Photo credit: Shoothead

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Tony Curtis MD of Alago Ltd holing a rugby ball with classic sports mitts

Without question, Vince Cable’s drive to stimulate the SME economy through the Business Bank initiative will be welcomed by the UK’s four and a half million small businesses. However, despite the government’s best efforts, a significant gap will remain between funding available from traditional sources and the amount of financial support required by business owners; in particular entrepreneurs. This highlights the importance of alternatives such as pension-led funding.

The greatest challenge for business owners is the ability to source the most appropriate funding without these same owners and directors losing total control of their business. Government initiatives are just part of the picture. The broader funding landscape requires a departure from the traditional, with businesses looking to help themselves and that, in turn, requires innovate funding solutions.

For inventor and entrepreneur, Tony Curtis, departure from the traditional started on the touchline of a freezing rugby pitch as he watched a match involving his 12-year old son, with the team’s ball handling skills rapidly deteriorating. “The game had been a tough one,” Tony states, “not because of the opposition, but because of the weather. I said to my son ‘what you need is heated gloves’!”

Tony’s sudden flash of simple genius led to early development, with the kitchen table as a test-bench and the family as guinea pigs. With a working prototype finally developed, Tony sought designers to take his heated gloves to the next stage, while wrapping his invention in patent protection. However, the step from development to mass production is both significant and costly and Tony had reached the point where additional funding was essential to get his gloves to market.

Tony’s ‘light bulb moment’ was the sudden flash of simple genius that strikes the best inventors. Early development began with the kitchen table as a test-bench and the family as guinea pigs. With a working prototype finally developed, Tony sought designers to take his heated gloves to the next stage, while wrapping his invention in patent protection. “From my initial idea, to having the glove ready for market, took five years. In that time I spoke with a huge number of sports players, athletes, sailors, gardeners and triathletes.”

“I hadn’t spoken to the bank at all as I knew that they would only lend us the money if it was secured against our home,” Tony explains. “The one thing that we had was the house – and this was the family safety net. We wouldn’t use this unless we exhausted every other avenue.”

Not scared of a challenge, Tony turned to BBC TV’s Dragon’s Den. In 2010, having set up his new company, Alago Ltd, Tony appeared in front of the Dragons with the aim of raising £100,000. The response was a fire-breathing ‘no’! But this simply fired-up Tony’s determination to prove the Dragons wrong.

Around the same time as his visit to the Dragons, Tony was introduced to Clifton Asset Management. Clifton is no stranger to innovation, having created the Optimise product which specifically focuses on pension-led funding and, in particular, funding based on Intellectual Property (IP).

Around the same time as his visit to the Dragons, Tony was introduced to Anthony Malcolm at Clifton Asset Management. Malcolm outlined pension-led funding and, in particular, funding based on Intellectual Property (IP).

In fact, another Clifton client, Planit Products Ltd, had also visited the Dragon’s Den. In Planit’s case, it was the company that said ‘no!’ to the Dragons, instead turning to Optimise as the solution to fund their now-thriving re-useable “Toastabag” business.

Tony also decided to take the pension-led funding route after a considered look at Optimise, using his existing pension pot as the source of finance for Alago. “I felt that I needed to make my pension work harder for me” Tony comments. “By choosing pension-led funding, I can finally invest in something that I have control over, take my own risks and make the money work for both my company and my pension.”

Because of Optimise’s innovative flexible structure, Tony had choice and control, making a clear strategic decision based on the Optimise Team’s advice: “We decided to take the loan-back option as our projected figures showed that we would make a rapid profit and this would allow us to pay the loan back to the pension more quickly.”

Tony’s £60,000 pension was transferred to a Clifton Small Self-Administered Scheme, established under sponsorship of Alago. This allowed Tony to release £27,000 of his total pension by way of a self-invested loan. He chose to secure the loan through a general debenture but, crucially, from a collateral perspective, a portion of the company’s IP (the pending UK patent) was independently valued to supplement the business’s balance sheet and this facilitated the loan.

“The whole process was really good. I met with Clifton regularly and he couldn’t do enough for us. There was absolutely nothing that I wasn’t made aware of. Once we signed the paperwork, the money arrived in our account in just a couple of weeks.”

By the summer of 2012, Alago had received its first batch of heated gloves – the manufacturing and delivery totally financed by funds from the Director’s own pension. Demand accelerated and a second manufacturing run was soon underway, a boost in moving Alago towards its first year turnover target of £200,000. All Alago products are currently stocked online (www.alago.co.uk), with a number of major specialist retailers already looking to sell product.

As if that wasn’t enough, Alago won the 2012 Guardian “Startup Company of the Year” Award and is nominated for an equestrian industry innovation award, having developed a new riding glove with EFI Westgate, the UK’s largest distributor of equestrian products.

While IP-based pension-led funding clearly has the potential to slay dragons, it has no magical properties. It is, simply, a common sense, regulated, but non-traditional funding approach that allows business owners to take control of their businesses and back their own success. That, in itself, is an important – and ingenious – advance in pension methodology.

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Loved by our customers - here's what they have to say

A 83 year old man with gardening gloves smiling

My Dad who is 83 loves his garden but finds his cold arthritic hands troublesome, he is absolutely thrilled with his gloves thank you!!!

A happy Dad
Two men running away from zombies wearing heated gloves

They're here - many many thanks for your generous hearted action - we'll definitely let you have some photos.

A warm handed customer
A tall man with a cycle with short tidy hair in red jacket with black shorts stood in the road

Hands are still warm after 2 hour cycle – everyone should get some Alago heated gloves!

Chris Bloomfield
USA Charity Cycle
A smiling face vector

Bought the gardening ones for my folks last Christmas – they are keen gardeners living not far from Exmoor, so these are ideal and a great price too!

Bethan Turner