Crowdfunding is growing up 

A recent piece in the Observer on crowdfunding: "Crowdfunding proving the perfect matchmaker", attracted some interesting comments, mostly negative, about the risks posed by crowdfunding. One implied that crowdfunding was donating by another name, and you should not expect your money back. Some commenters suggested that fees for platforms were too high and that the platforms, and not investors, were the ones really making the money.

The truth is, the risks can be high. You can lose all of your money. In a lot of cases, crowdfunding is more for the love than the money ("I really like the coffee they sell", or "I really want to play that game once its developed"). And people are right to question any ultra high platform fees if they are not getting anything in return on their cash.

Of course, there are downsides to crowdfunding: both for the businesses raising the money and for funders - either lenders or shareowners. But to dismiss the entire crowdfunding universe as "too risky" is to not understand what it actually is. 

Because crowdfunding is as wide and varied as the entire investment universe, with some products that resemble savings accounts and other that resemble a bet in a casino.

Indeed you can argue that all it is is investing, but unlike conventional investment, it is without the middleman, or lots of confusing fund names and random fees in-between. With crowdfunding, your money goes straight to the beneficiaries - not through the hands of a dozen fund management companies and stockbrokers first.

You have donation-based sites; sites that specialise in start-ups seeking seed investment, and others that specialise in lending to established businesses.  You can have crowdfunded bonds, mini-bonds, debentures, shares or loans. Crowdfund of funds cannot be far away. With all these different types and stages of business, and different types of products, there come different compliance requirements (some regulated, some not), different benefits and different risks. With such variety, the important thing that is worth making a fuss about is transparency. Do you, the lender or investor, feel like this product has been explained to you in a way you can understand? Do you have a clear idea of what you might get out of it? Is it easy to find how much the platform is earning and what your money will be used for? 

To an extent, the relevance of all this depends on whether the individual is going in for the love or the money. Those backing a project for the former could be potentially more easily confused than those purely seeking returns, who will analyse the risks and exactly what to expect from the product more closely.

I work for Trillion Fund, which is a renewable energy crowdfunding site with a focus on lending to established renewable energy projects, by experienced developers, which are already generating electricity and have enough historical data to make reasonable forecasts on future returns. We perform due diligence on those projects that use our site exclusively, which, while not guaranteeing investors won't lose money, makes us sleep a lot better at night about having presented the opportunity.

Trillion Fund is not alone in its efforts to bring crowdfunding from the Wild West of financial services to centre ground. If we want to compete with traditional investments, then we need to have the same attitude to risk and treat customers' money properly, because the coolness of crowdfunding can't be an excuse for not doing things properly. 

With trust and transparency, and with more experience in the sector generally, there is no reason why crowdfunding cannot become as mainstream as an ISA. Indeed, certain types of crowdfunding (peer-to-peer, or loan-based crowdfunding) are being considered for ISA status, precisely because some of the key players in the industry have worked so hard at bringing the risk down to an acceptable level for retail investors. 

It is vital to highlight risks with any financial product - of course it is, but let's not forget the great work that crowdfunding does in addressing some fundamental economic flaws, namely: businesses need money, ordinary people need decent rates of return and banks, generally speaking, charge too much to both - and in a very opaque way.

Of all of the innovations in financial services, this has incredible potential, which has ironically been recognised by the traditional banks, who are so impressed that they are presently at pains to emulate it.

Rebecca O'Connor
Editorial director
www.trillionfund.com
[email protected]

New Zealand - A safe haven for the savvy angel

 Investing in New Zealand is now even easier thanks to a range of migrant-friendly business visas enabling individuals and their families to capitalise on New Zealand's dynamic growth economy.  With its favourable tax environment, entrepreneurial, 'can do' attitude and thriving business angel network, coupled with beautiful countryside and quality lifestyle, increasing numbers of investors are being attracted to New Zealand.  Trevor Dickinson is one such angel.

In good company

Trevor Dickinson and his wife moved to New Zealand in 2011 on a five-year Business Visa to pursue a new lifestyle.  Trevor had sold his specialist offshore drilling technology company Geolink (UK) Ltd in 2004 and, during a holiday to New Zealand, "fell in love with the stunning country and friendly people".  Although Trevor knew very little about investment opportunities when he first moved to Wellington, he was soon introduced to the local angel investment club, AngelHQ, and the rest, as they say is history!

Trevor's angel investments are many and varied and, as he puts it: "most are internet-related or have a certain 'geeky' flavour".  They range from search engine technology to the manufacture of smart sensor textiles and even hunter safety technology and medical research.  In all, he has made over 25 angel and start-up investments since joining AngelHQ.

Why New Zealand?

Trevor explains: "New Zealand has a safe, stable and secure business environment which has been relatively unaffected by the Global Financial Crisis.  It has a very simple and business-friendly tax system and there is no payroll tax, no social security tax and no capital gains tax.  There is no personal inheritance tax either.  The workforce is well-educated and payroll costs are relatively low in comparison to other developed countries."

[email protected]
www.prowse.co.uk

Alternative uses of Intellectual Property Assets

Similar to a tangible object, registered intellectual property (IP) rights like patents and trade marks are considered an asset and can be valued, purchased and sold. Here we take a look at some non-traditional uses of IP assets beyond their use as defensive tools.

Revenue generation

Revenue can be generated though selling, licensing or litigating for infringement. A company may wish to sell a proportion of their IP assets if they are no longer relevant to the core business, for example, following change in commercial strategy, or to aid recovery in case of corporate distress. Should the company wish to retain overall ownership of the IP, then licensing the technology to a third company might be considered. This will ensure the technology is not made available to a competitor. Finally, should an unauthorised third party infringe IP rights, then successful litigation will compensate commercial losses and act as a deterrent against any future infringement attempt.

Security

Once an IP portfolio has a value affixed to it, a company can use it as leverage to gain access to funds from finance providers. The loan value generated through developing and protecting IP is generally higher than the costs of creating it, which can enable accelerated growth for a relatively low outlay. Of course, it is important to be aware that defaulting on the associated loan will put the ownership of IP assets at risk.

Government support

Complementing the well-established R&D tax credits, UK organisations paying corporate tax can now apply for relief on worldwide profits made from patented products or products with patented components, reducing the rate to as little as ten per cent. This scheme is known as 'Patent Box'. It also applies to income generated from the sale of patent rights, license fees and from litigation proceedings.

Company structure

The most valuable asset on a company's balance sheet is often its IP. It is therefore not uncommon that these assets are held by a different company which is separate from the manufacturing or trading arm, to protect the IP from the reach of creditors should the company experience trading difficulties.

With careful consideration and planning, IP rights can serve as more than defensive tools against unscrupulous competitors. If acknowledged in their own right, they can serve as secondary revenue generators adding real value to businesses both large and small.

If you would like any further information please contact Duncan White, patent attorney at our Oxford office, or say hello at the Oxford Pitching 4 Management event on 1 July. 

Understanding Your Business Finances - A Review Article

Take control of your cash and manage your business with confidence

Johnny Martin FCA

Gateshead: Cobweb Information, 2014

£28.95

'Understanding Your Business Finances' is a practical workbook written by FD and entrepreneur Johnny Martin as part of the award-winning Essential Business series. These guides have been put together as a series of books to clarify and simplify the presentation of business information for those that need it most, namely the small business owners themselves. The basic premise being that if small business owners can acquire the information and skills that they need, then they will be able to better maintain and grow their businesses.

The difference between this guide and many of the other 'self-help' guides for business owners is that it is simple without being patronizing. It's based on what the author has learned from his own experiences, namely advising and running small businesses.

The reader's knowledge is advanced gradually, with a logical progression from an introduction in financial reports to understanding the day to day accountancy involved in running a business. Practical application of the theory is further enhanced by the ever present hypothetical business owner Sam and the foibles of his catering company. This is then re affirmed with useful worksheet pages and checklists in each chapter for the list tickers among you.

The book undoubtedly succeeds in achieving what it sets out to do and more besides. Knowledge is passed on quickly through well structured chapters, guiding the reader through financial principles and worked examples. Building understanding and confidence through a wide variety of exercises and continuous introduction and reiteration of the financial vocabulary that abounds.

I realize that I am far from the intended audience of this book; however I think the usefulness of this guide should not be confined to the small business owners of this world. Employees would also benefit a great deal from reading this book and ought to be encouraged to do so by business owners.

The book is packed with useful information, breaking through the tedium of business finance jargon that is seemingly accessible to an exclusive club of FDs and accountants (and not one that I am likely to be joining anytime soon I might add.)

The guide should also be used to educate and further the understanding of those individuals that are contributing directly to a company P&L, the heartbeat of an SME.  It is understandable that many company owners would sooner sell their kids than let their employees delve into the company finances. Far easier to just keep everyone in the dark about balance sheets and cash flow forecasts to ensure that pay structures aren't questioned and 'harmony' can be maintained (or at least engineered.) I think in many businesses however this is actually detrimental to the creation of a work ethic and a company ethos. More transparency and a greater understanding of business finance at all levels would actually benefit many businesses and further empower owners.  

If targets can be set with employees understanding the impact of their personal contributions in the wider context of the business then that individual and consequently the team is more likely to all pull in the same direction. If a sales, marketing or HR person can actually understand the difference between profit and cash, recognize the impact that their sales and time are having on a P&L and thoroughly understand the business model then communication and performance would surely improve. Assuming of course that a fair and balanced pay structure is in place!

If you are a company owner this book will undoubtedly stand you in better stead to interact, present and question the financial figures on a daily basis. It will help you feel more confident and will enable you to interact better with accountants and investors - all financial personnel for that matter. Equally, for someone starting out in business and being actively involved in contributing to the growth of a small business, the advice has been invaluable. If we can all become better at understanding the numbers then the efficiency of businesses will only improve and we will all make more money.