Tag Archives: crowdfunding

Crowdfunding – a success story

I first dipped my tentative unpensioned toe in the murky shark-infested waters of crowdfunding a couple of years ago.

I wrote then that I was under no illusions about the inherent risks in this relatively new investment mechanism, technology enabling investors to support early-stage businesses and potentially earn greater returns than elsewhere, in the new low-interest and low-return environment.

I subsequently wrote about the need for the crowdfunding platforms to make sure sufficient due diligence was being undertaken on businesses and entrepreneurs, before being listed as investment opportunities. And how they should be more transparent about the performance of each business after the crowd had invested.

Rob Murray Brown posts far more incisively and frequently than I do about the failures of the crowdfunding platforms – particularly CrowdCube, one of the largest – on his hard-hitting blog The Truth About Equity Crowdfunding.

One of my own investments through CrowdCube two years ago was in a bond – so a debt instrument, rather than equity – to help finance the growth of Daisy Green cafes across London. For my support, I would receive 11% interest pa (paid twice a year), with a repayment date of 2019. Other benefits included free coffee for a while, and invitations to launch parties at new cafes.

In a surprise email last week, the founder said that the business had made such good progress that they had refinanced the bondholder debt with ‘a leading UK bank.‘ This significant new debt facility ‘will allow us to continue to expand Daisy Green throughout London.’

My latest interest payment and original bond investment are to be repaid in full immediately.

Rob Murray Brown takes a somewhat jaundiced view that bondholders should somehow feel disappointed:.

I don’t. I say hoorah for Daisy Green. I have received 11% on my money for 2 years. I’m going to get my investment back in full. I’ve enjoyed some outstanding coffee. I was a lender, and not an equity investor.

There were early repayment terms – without penalty – in the documentation. Perhaps they could have been more transparent, but I applaud Daisy Green for their progress and if they can refinance at less than 11%, and accelerate growth, they would be crazy not to.

The founder indicates that there may be the opportunity for bondholders to ‘get involved‘ in the next stage of Daisy Green’s story. We shall see what form that might take. But in the meantime, let’s celebrate this success for a hard-working entrepreneur and her team, and for crowdfunding.

Image courtesy of Business Funding Show

Amberlair – the world’s first crowdsourced & crowdfunded boutique hotel

‘Boutique hotels with a reverse approach: Create an audience first, let our future guests have a say, and then comes the hotel. The Amberlair concept has the guest experience at its heart and we firmly believe it has the potential to revolutionize the way hotels are built, designed and operated.’

‘Our community of backers – who we dearly address as #boholovers, meaning boutique hotel lovers – are involved from day one, both creatively and financially. Even our name was crowdsourced, because a hundred minds work better than one.’

‘And guess what? Our community has also chosen the location of the first Amberlair in Italy. With the help of our community, we are going to develop a historic villa in Puglia, Italy, and to turn it into the perfect boutique hotel.’

The main villa at Amberlair’s Puglia property

Amberlair is the vision of Kristin Lindbergh & Marcus Orbee after several years travelling and researching, and it is fast becoming a reality.

I love travelling, especially to Italy. And I’ve taken a keen interest in the development of crowdfunding as a funding mechanism for entrepreneurs and as an opportunity for investors….as long as they are aware of the inherent risks. So digging into the unique Amberlair concept was too interesting to miss.

Kristin and Marcus have been kind enough to answer some questions about themselves,  Amberlair and Puglia….I hope you’ll find this Q&A session with them interesting:

Q. you have both spent some time touring the world, evaluating the boutique hotels market. Did you always have in mind that this was specifically to research what has become the Amberlair project, or was it a more speculative trip?

A: When we made the life-changing decision seven years ago to travel the world, we could not even imagine that the impact and inspiration would lead us to create Amberlair. On a Saturday morning in 2010, Marcus decided to quit his senior strategic planning role on the implementation of the Airbus A380 to act on a long-overdue passion. He wanted to travel the world. And because Kristin had made travel part of her life for years, lived in different countries and was working in the tourism industry, she was eager to begin a new adventure as well.

So, we packed up and began our travels for over two years and through more than 40 countries on six continents. Traveling to this extent (we became exposed to so many different cultures and lifestyles!) gave us a new perspective, and exploration fueled our creativity.

During our trip, we discovered that the most special and unique experiences were brought on by staying in smaller, independent hotels. The hip hideaways we found gave us a taste of the local culture and people. We learned how these small businesses operated, and it was so refreshing to discover that none of these owners came from a hospitality background; these hotels were driven by passion. We soon realized that we were not the only avid travellers who preferred to get a truly authentic experience through boutique hotels.

We did encounter some difficulty in our quest to find the best boutique hotels around the world. They were hard to find. In some countries, we couldn’t find a single boutique hotel. The big chain hotels and cookie cutter accommodations simply lacked the same personal and authentic touch that we loved about our favorite boutique accommodations. It was at this point that we felt the urge to do something. How could we make boutique hotels more accessible to travelers, while still tapping into the passion and knowledge that made these spots so special?

This period of travel, inspiration and discovery sparked something in us that would ultimately become the motivating factor for launching Amberlair…

Q: how did you settle on Puglia for the first Amberlair property? I think the crowd voted for this special location in the heel of Italy, but what due diligence did you do on the location first and what others were on the shortlist for the crowd to vote on?

A: Amberlair is the world’s first crowdsourced boutique hotel brand that has taken a revolutionary ‘reverse’ approach to the way hotels are built and conceptualized. First, we created our online global community of boutique hotel lovers and brand followers, establishing a relationship with them from day one to create potential lifelong guests before the hotels are even built.

We then worked with our community to crowdsource their ideas, from choosing the name of our company to the location of the first hotel and will continue to do so throughout the process, shaping the hotel’s eventual design and service amenities to create the ideal boutique hotel, designed by its future guests. Our community of supporters are typically global travellers who don’t like ‘cookie cutter’ hotels. Creative and social minds who have great ideas and strong opinions, and who are ready to put their hearts into the project. They overwhelmingly chose Italy as the location of our first hotel. They spoke and we listened, seeking out the perfect location and the perfect property to develop.

To us, Puglia had such an authentic and powerful sense of identity, much like we have seen in Ibiza, Marrakech and Tulum. It has 500 miles of coastline and the best beaches in Italy. It offers simple, yet excellent and high quality Italian food. It’s full of culture and has lots of UNESCO world heritage sites: Trulli of Alberobello, the Baroque city of Lecce, Castel del Monte, etc. It has beautiful white washed hill top towns, like Cisternino, Ostuni and Martina Franca. In 2013, Puglia was listed among the top 10 world destinations for wine tourism in Wine Enthusiast’s annual ranking. International tourism in Puglia increased by 56% from 2007 to 2014.

Image courtesy of TripSavvy

We conducted an extensive location study and deep dive into researching luxury accommodations in the area. We did this with Jan Hazelton, who is our head of development. Jan has extensive experience in hotel investments and was previously Vice President of Development in Europe for Four Seasons Hotels & Resorts. While the region has a strong demand for 4-5 star hotels, there has been a lack of true ‘boutique’ hotels, until now!

The three most popular locations on our shortlist were Spain, Italy and South Africa, with Portugal, United Kingdom, California, Iceland and the Alps also making it onto the list.

Q: how did you go about deciding which crowdsourcing & crowdfunding platforms to use? I think you’re currently raising €15,000 on Indiegogo and 6,000,000 on The Angel Investment Network? Which other platforms have you considered?

A: Crowdfunding and crowdsourcing are at the heart of the Amberlair concept. With the current equity crowdfunding campaigns on Fundable and Angel Investment Network, we are looking to raise approximately about 6 Million Euros, along with 15,000 Euros through reward based crowdfunding on Indiegogo https://igg.me/at/amberlair. There are a lot of platforms out there and we spent a long time researching the right one for our particular project. We chose these because they gave us the best distribution to potential supporters and backers, and had the most compatible infrastructure to host our campaigns.

Q: the €15,000 you’re currently raising on Indiegogo is obviously a small amount in terms of your overall funding requirements for the Puglia property. What will you use the €15,000 for, and is this as much about finding more brand ambassadors at this stage, as it is about the cash flow? 

A: The funds raised through Indiegogo will finance the architectural plans required to turn the historic villa we have found in Puglia into the perfect boutique hotel. Additionally, we have an incredibly passionate boutique hotel lover community and we hope we will attract more through our crowdfunding campaign, which will highlight our revolutionary approach to hotel development. Added to this, our equity crowdfunding offering is a very attractive investment, with the possibility to own a share of the business and asset for as little as 2,500 Euros. Investors will receive a share of the real estate asset, along with an eventual IRR of between 30-35%.

Equity crowdfunding links:

Q: I think it’s a really exciting concept to have the crowd give opinions on everything from the brand to food to room decor, but how do you anticipate this ‘democratisation’ will work in practice? How will you manage the different views of so many investors, and will you have the final say? And will you have a traditional Board structure to execute operational decisions?

A: Amberlair supporters can be involved throughout the process in order to help us create their perfect boutique hotel. Backers will be able to participate, interact, influence, back, fund or simply lay back and watch it all happen!

Our community can always suggest ideas and give  their opinions and we will try to turn as many of those ideas as possible into a reality, as long as it reflects and respects the overall history and style of the property and locale. At certain key stages of the project, we will canvas ideas and put the top suggestions out for a vote, for example, what shall we do with the large birdhouse on the estate, what shape of pool do they want, etc.?

We don’t have a board of directors, but we (Kristin and Marcus) will have the final say, along with our management team of hotel experts.

Q: In your financials, you anticipate a total of €18.8m from EU subsidies. What is the process to apply for these grants, and what contingency plans are in place for alternative funding in the event that the subsidies aren’t received, either in part or in full?

A. There are several criteria we need to meet in order to apply for the EU subsidies. Italy is not the easiest country to develop in, but we have a strong team of local architects and designers on board who have helped us to ensure that our proposed works conform to all building regulations in the local area.

We will go through the process of applying for permits from the local authorities once we have raised the funds to acquire the property, but do not anticipate there being any issues with this. We have done a feasibility study to anticipate any challenges along the way, from securing the right licences and change of use permits, to finding the right building contractor to deliver the project on time.

We are positive that we have allowed for all the possible outcomes, but guess that dealing with unexpected challenges all part of the fun of developing a hotel!

Q: I love your concept of building the audience before building the property. Do you know of comparable business models in any other sector, do you think, or do you believe your approach for Amberlair is truly innovative, in the hospitality sector at least? 

A. We haven’t come across any other projects like ours, where the community and future guests are involved in creating their perfect boutique hotel from scratch, being involved from day one in decisions like choosing our name, voting on our first location, making decisions about converting the property we have found into a hotel.

A few years ago, Marriott ran a small online digital survey asking guests to vote on three different mock-up room designs, which is the only other crowdsourcing we have seen in the hospitality sector. In 2015 Amberlair was included in World Travel Market’s annual Global Trends Report as leading the way in crowdsourced boutique hotels.

Q:  have you already begun to think about likely destinations and funding mechanisms for property #2 and property #3? How will you ensure there’s enough operational focus on the Puglia property #1, whilst also strategically planning for Amberlair’s longer term future?  

A: We owe it to our backers and supporters to get the first Amberlair property right, and that is our focus for now, but we are always looking for new growth opportunities.

Our longer-term plan is to open up to 50 hotels globally in the next 20 years. Crowdsourcing and crowdfunding are at the heart of the Amberlair concept, so we will continue to develop the company along those lines for future projects.

Thanks to Kristin & Marcus for such detailed and thoughtful answers. I wish them well with Amberlair and hope that I can get to meet them soon, and visit Puglia to see the site of the first Amberlair boutique hotel.

Crowdfunding – shark-infested waters?

I wrote a couple of months ago about my own first tentative steps into crowdfunded investments.

There is some real momentum behind this relatively new alternative finance phenomenon, technology and awareness giving entrepreneurs access to a large pool of potential individual investors.

Crowdcube is the largest platform, providing a bridge between the entrepreneur and investors. As of today, it has 283k investors on its books, and £165m has been pumped into 406 successful fund raises. It may be an unfair comparison, but Crowdcube could be considered the Tescos of equity crowdfunding, piling the deals high and selling them off cheap.

But at what price to investors…?

The Solar Cloth Company used the Crowdcube platform to raise £967k from 400 individual investors just 17 months ago. The Directors projected the business would be valued at £100m in just 3 years after the funds had been raised.

The Times has reported today that the Solar Cloth Company has just gone into administration, blaming a downturn in the solar power industry, and cuts in government subsidies.

Another significant failure with Crowdcube’s name all over the fund raising was Rebus. A claims management company, it raised £816k from 100 investors just months before it collapsed in February 2016. Investors through Crowdcube were not aware that Rebus had previously engaged a restructuring expert to advise them how to plug a cash flow chasm.

Crowdcube – and other equity crowdfunding (“ECF”) platforms – must start performing proper due diligence before listing investment opportunities. Otherwise the FCA should step in to ensure there is sufficient investor protection. The current “hurdle” – someone signing up to an ECF platform has to self-certify that they are either already a sophisticated investor, or a high net worth individual – is about as low as a limbo-dancing snake in a BHS store.

Crowdcube should also be much more transparent on their site about previous fund raises. I’d like to see a detailed summary of all businesses that have successfully completed ECF rounds, showing the timing, amount raised, key commercial milestones relative to business plan projections, any subsequent capital raising efforts….and all very clearly linkable from the Crowdcube home page.

And its failures should be even more transparent, giving investors a much louder warning that their hard-earned cash is at significant risk.

ECF is growing fast, and has the potential to be an even greater weapon in the fund raising armoury for start-up and early stage businesses. It would be a real shame if the platforms blew that opportunity.

Crowdfunding – risky business

I wrote back in November 2015 about my first tentative foray into investing through crowdfunding platform Crowdcube.

I’ve now made several small punts on the following businesses, all of whom raised funding through the Crowdcube platform:

  1. Alexi – a curated book app
  2. Vulpine – cycling apparel brand
  3. Chilango – Mexican fast food
  4. Cauli Rice – healthy food
  5. One Rebel – funky gyms
  6. Five Point Nine – coffee subscription
  7. Simply Cook – recipe kits

And one through the Syndicate Room platform:

  1. Lobster – digital photo marketplace

These are all equity crowdfunded investments. Separately, I’ve also put small amounts into a couple of crowdfunded mini-bonds, debt funding for businesses a little further along the growth curve:

  1. The Bondi Bond – a chain of Aussie style cafés (11% interest rate)
  2. Brewdog – craft beer (6.5% interest rate)

I’ve also been to investor events at Crowdcube and Syndicate Room, to meet the management teams and to network (ugh!) with other investors and some of the entrepreneurs pitching their businesses and investment opportunities.

I’m under no illusions about how risky this brave new world of crowdfunding is, as I noted in my November article. But you’d expect Crowdcube – and all the other crowdfunding platforms – to carry out a minimum level of due diligence before putting opportunities in front of investors. Especially as they’re regulated by the FCA.

But stumbling on this blog from Rob Murray Brown – fantasy equity crowdfunding – reveals some serious concerns about this brave new world of crowdfunding. It’s not surprising that he shines the brightest light on Crowdcube – the oldest and largest UK platform – which as of today claims to have raised £148.5m for 378 completed campaigns, from 267,169 investors currently registered with them.

If some of RMB’s accusations have merit, crowdfunding could be the next financial services disaster in the UK. So far, I’ve only invested small amounts that I’m prepared to lose. I hope one or two successes exceed the inevitable losses on most, and I have a bit of fun along the way, but – if I take off my rose-tinted glasses – that’s probably unlikely.

With the current levels of publicity and momentum behind crowdfunding – and historically low interest rates on traditional savings vehicles – there’s a real risk that naive investors might lose a significant proportion of their wealth.

I’m thinking about starting a separate blog myself to dig deeper into this burgeoning world, so that I can understand it better and to try and help others along the way.

What do you think? Potentially interesting and useful….or will everyone just continue to follow the crowd?