Crowd Control: How Kickstarter's Loss Became Sweden's Gain

Mar 30 2014, 6:14am CDT | by

Entrepreneurs are starved of investment alternatives. Investors are starved of investment alternatives.

Crowd investing offers a solution for both, but even the most successful crowd platforms have funding issues of their own, and nowhere more so than in Europe.

Sweden, like other Scandinavian countries, survived the global financial crisis and was attracting investors while the Eurozone teetered on the brink of collapse, yet the funding climate for start ups is as bracing as its winter weather.

Back in 2010 Romanian art curator Daniel Daboczy and Namibian coder Arno Smit, who had both moved to Sweden and had met up when they collaborated on a web project, had a business idea that needed funding.

IdeasForChange was based on a concept of connecting people globally to ‘crowd share’ information. The scarcity of seed funding in Sweden sent them looking overseas for the capital they needed, and put them on the trail of crowdfunding, where the only real source they could find was Kickstarter. They duly completed the application process…and were duly denied.

“We weren’t US citizens, didn’t have US bank accounts and in general they didn’t think that the idea would strike a good tone with their audience,” said Smit.

Necessity, the mother of innovation

However, once the frustration of rejection had subsided, innovation went into overdrive. There was a huge gap in the European start up funding market that needed filling, and in January 2011 the first version of FundedByMe went live.

Their prototype rewards-based platform was essentially a web page, connected to a payment service provider, which raised €11,500 ($15,800) in 60 days by offering t-shirts, caps, hugs and lectures about crowdfunding.

Then the first flaws started to appear. Crowd feedback was along the lines of ‘This is great but, I don’t see how I can use this for my app company; charging €20 to €50 for something that will eventually be free in the an app store.’

The following year the founders added equity crowdfunding to their offering; by September, had secured their first angel investment, and four months later closed their first equity case; Virtuous Vodka, a Swedish organic vodka that raised €113,000 ($155) in eight weeks.

Since then Fundedbyme equity crowdfunding has raised more than €5,000,000 ($687 million) for around 20 companies, largely consumer products and tech startups, that include Goodio Cools a Finnish ice cream company that raised €50,000 ($ 68,700) in less than two weeks and Samastah a Spanish self improvement platform through gamification that raised €76,000 ($104,000).

A few weeks ago FundedByMe completed a crowdfunding round of its own, raising €677,000 ($930,000) in six days.

Global crowd

But the founders’ real goal was to become a major cross-border crowd-investment platform. From the start they had been successful at attracting the interest of and established links with international investors; 95% of their start ups have had cross-border investments.

Using what Smit describes as a ‘tollgate approach’ to broaden their footprint, they quickly identified Germany, with its population of more than 80 million people and a similar culture to Sweden, as a key market, and also a springboard for their new profit participating loans-based offering. Peer-to-company loans and convertible loans, initially to be launched in Sweden, are also in the pipeline.

The eclectic mix of crowd offerings gives FundeByMe its USP. The challenge will be overcoming the often complex legislation around crowdfunding, which varies between individual European markets, and is almost non-existent in some./>/>

“We are working with a legal firm and the relevant local authorities to make sure we comply with local legislation, and thus far we’ve seen that FundedByMe and our business can scale pan-European,” says Smit.

Last week the European Commission published its Crowdfunding consultation touting a pan-EU forum to improve standards, create best practices and develop a ‘quality label’ for platforms, but stopping short of pan-EU legislation on crowdfunding.

With the threat of strangulation by EC red tape removed, at least for now, the Swedish roll out continues, and has already exceeded European borders.

At the end of last year FundedByMe launched in Singapore, a capital rich country with a high proportion of expats….just waiting to be connected with projects and investment opportunities back home. Which raises the question, in the race to become a global leader in the industry, is FundedByMe risking over stretching itself and risking becoming lost in the crowd?

They’ve already thought about that, says Smit, adding: “We are in eight countries; now comes the most important part, showing traction in all these markets. ninety five per cent of our cases have found international investors. We want to make sure we can facilitate even more of these and have success cases in each and every country. So for the time being expansion is important, but so is market validation.”

Source: Forbes Business

 
 

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