Crowdfunding for business purchase?

[youngtrepreneur]

Hi all,

Would appreciate some advice/thoughts.

I am NOT seeking to purchase the shares of a business, rather some intangible assets of a limited company, transferring them to a new limited company and thereby using it to start and build a business - an asset purchase, if you will.
No tangible assets.

What's being purchased is largely irrelevant.

Would crowdfunding be an option for financing this?

Thanks in advance.

 

[Mark T Jones]

Crowd funding isn’t the ‘lender of last resort’

It works well when you have an engaged crowd and a compelling proposition to entice them

Do you have either of these?

 

[obscure]

People crowdfund because (they hope) it will lead to the creation of something they believe in/want. Things like medical help for someone in need, a pocket sized drone that can follow them around automatically streaming their life to social media or a photo book that highlights the ecological damage being done by Giant Evil Corp. I don't think that you owning a company is something that many people believe in/want. So as Mark puts it, do you have an engaging proposition that people will believe in/want?

 

[youngtrepreneur]

Thank you for your replies.

I'm fully aware what crowdfunding is, and I do not see it as some kind of "last resort".

I do have a proposition that I believe will be very engaging, however having not started a crowdfunding campaign (yet) I of course do not have an audience.

So can crowdfunding be used to purchase an intangible asset for the purpose of starting a business?

 

[fisicx]

Yes. But it's unlikely to do that. If investors were interested in the company being purchased they could buy it themselves. There is no benefit to them giving you the money.

 

[Mark T Jones]

You say ‘of course’ you don’t have an audience- this is critical. Most of the success stories you see in crowd funding are the result of many months hard work in building and motivating a crowd

How are you going to reward your investors?

Why have you opted for crowd funding over more traditional forms of funding?

It can be used for any purpose you like, it’s the above points you need to focus on

 

[fisicx]

And investors will want to see that you have invested a chunk of your own money developing the prototype, market testing, research may some trials and so on. If you just want money to buy a business then the incentive isn't there.

Have you asked all the customers of the business if they want a share? Have you been working in the business to find out if you are a viable owner? Have you written a business plan showing 1, 2 5 and maybe ever 10 year projections?

Is there going to be a ROI for the crowdfunders (if they like your proposal).

 

[Mr D]

The few crowdfunding success stories I have heard of in business had an end goal people were happy to see and for levels of funding were given tangible benefits. A t-shirt, a place within the project named as they wished, advance access to alpha and beta testing and so on.
And most importantly, name recognition among certain demographics so a chunk of the people were already interested in the idea of the end goal.

Simply to allow someone to buy some assets to help their own business wouldn't engage me at all.

 

[youngtrepreneur]

Hi all,

Thanks a lot for all the replies. I really appreciate it.

Perhaps I should have made it clearer in my original post that the concept of crowdfunding is in no way new to me.
All advice and help is much appreciated, though I am familiar with basic things like the need to engage people, how crowdfunding works generally, etc.

The details of what I have planned are largely irrelevant, but I think my question has largely been mistaken for some lack of understanding of crowdfunding.

In brief: people start and grow businesses all the time using finance raised through crowdfunding.
I plan to do this too, but use some of the money raised to purchase assets (intangible) from another company.
That's it!

What I'm asking is simply whether this is 'fit' for crowdfunding.
I presume it is, but I'm just checking.

I understand the ideas of offering people an incentive, engaging an audience, etc.

 

[Mr D]

Then you'll know that crowdfunding gets used for all sorts of stuff. Be up front with people about what the money will be used for.

 

[youngtrepreneur]

Thank you.
I do have another question that I guess is about the basics: producing a business plan.

Fairly straightforward to put together, and helps to crystallise the idea and how to achieve targets - I know.
To be honest I do have an issue with those who are determined that a 10 year business plan is anything more than a waste of time, but anyway...
...to what extent do you think I need to write an 80 page business plan covering the next 5+ years at prestart-up stage?

The reason I ask is because:
1. Sitting down and writing an 80 page business plan doesn't seem particularly lean, helpful, nor pragmatic, unless it is needed for a specific reason (e.g. investors who MIGHT need to see a business plan - not all do).
2. With regards to crowdfunding, I have never seen anybody present an actual full business plan as part of their campaign.

To be clear I'm not saying that an overview of the product and the business should not be given on the crowdfunding campaign page (it nearly always is!), I'm just questioning the NEED for a full 5+ year business plan.

Thoughts?

 

[Mark T Jones]

Product / service = one para

Marketing plan
Strategy
Cashflow projection (max 3 years)

RETURN TO INVESTORS

If 4 pages covers it, then 4 pages is enough

 

[youngtrepreneur]

A bit beyond the original purpose of the thread of purchasing assets with crowdfunding finance, but regarding the business plan I'm even bordering on hammering out a plan by hand and summarising it infographically.

 

[Mark T Jones]

Not sure how you can summarise market research with an info graphic but then, I’m not a creative

At the end of the day, if it works, it works.

 

[Mr D]

Crowdfunding - think of what you are selling to the people. Whether you can do that in 4 pages or 80 if its not written then it cannot be read.

 

[obscure]

The money raised from crowd-funding can be used for all the various elements necessary to bring "the product" to market. If you need to do R&D, fund manufacture, license/buy rights to IP, or whatever, they can all be paid for using the money..... but only if the product itself is interesting enough to get people to invest in the first place.

As for the business plan. If you don't have one how do you know that the financial target you set will be sufficient? I am sure you can raise money with just some flashy videos and some info graphics... many have.... only to then crash and burn when it turned out that their back of a fag packet guesses were totally unrealistic.

 

[fisicx]

...but regarding the business plan I'm even bordering on hammering out a plan by hand and summarising it infographically.

If you don't have the projections then how are you going to tell investors all about the returns you will get.

Going back to your original question. You can use crowdfunding for whatever you want. If a portion of the money you want to raise is for the purchase of intangible assets and you can convince potential investors this is a viable project then great. But it's your business plan that will provide the detail.

 

[youngtrepreneur]

Out of curiosity, are there any other alternative ways of raising finance, or structuring the deal, that you would suggest (especially if you have experience)?

Thanks.

 

[fisicx]

When I needed cash I worked two jobs, stopped spending money and saved everything. Took me about 6 months but it gave me the funds I needed.

Nowadays I just go to the bank and get a loan. Once your credit history is good it takes less than an hour.

 

[youngtrepreneur]

There isn't anything wrong with my credit history, but I don't want to take out a loan to start a business.
All those fixed payments coupled with uncertainty don't equate in my mind, hence my reference to alternative forms of financing.

 

[Mr D]

There isn't anything wrong with my credit history, but I don't want to take out a loan to start a business.
All those fixed payments coupled with uncertainty don't equate in my mind, hence my reference to alternative forms of financing.

And if you cannot raise the money by crowd funding?

 

[Violinni]

I have nothing against crowdfunding because I donated money on a dozen of instances, supporting causes or organisations I believe in.

But lately people stopped caring. The fundraisers become a very profitable business and an easy way to scam people.

I even saw a campaign about Kanye West’s “buy new shoes for Kanye West” campaign. Not posted by him, but by a kid that wanted to buy new NBA shoes for the millionaire star Kanye West.

That was either a scam, or a complete and very bad joke. This kid raised $7,000 USD for a pair of shoes...to give as a gift to a millionaire music producer.

Brain damage.

 

[youngtrepreneur]

And if you cannot raise the money by crowd funding?

I haven't tried yet.
But I'm exploring options open to me before I decide on any particular door to walk through, hence my question at the bottom of page 1

 

[Mr D]

I haven't tried yet.
But I'm exploring options open to me before I decide on any particular door to walk through, hence my question at the bottom of page 1

You are probably right to avoid loans. For you.
If you are not absolutely sure of repaying them easily they can be a millstone around your neck.

Very handy at times though. Got my first car with a bank loan, did not touch my savings.

 

[Violinni]

You are probably right to avoid loans. For you.
If you are not absolutely sure of repaying them easily they can be a millstone around your neck.

Very handy at times though. Got my first car with a bank loan, did not touch my savings.

And still you pay more for the product. That always bothered me. Why pay on top when I can wait?

 

[Mr D]

And still you pay more for the product. That always bothered me. Why pay on top when I can wait?

Depends what the cost of waiting is.

For me it provided a car the family could use. It later enabled me to do work in a town 15 miles away.

 

[Violinni]

Depends what the cost of waiting is.

For me it provided a car the family could use. It later enabled me to do work in a town 15 miles away.

What if you simply went and got a cheap Rover or Subaru for £600–£800 (not a lemon)?

 

[obscure]

There isn't anything wrong with my credit history, but I don't want to take out a loan to start a business.
All those fixed payments coupled with uncertainty don't equate in my mind, hence my reference to alternative forms of financing.

Funding for starting companies comes from bank loans, your savings or FFF (friends, family, fools). In some rare instances there are grants or schemes that can be applied to but they are usually restricted in who can apply or what the money can be used for. Unless you can find that mythical Fool no one is going to just give you money so you can have a business.

Put simply there are no alternative forms of financing (that are better than the above). If there were people would be using those and they would be the norm, not the alternative.

 

[Violinni]

No one is going to just give you money so you can have a business. They will lend you money (to be paid back) or invest money money (so they own the company).

You’re talking that talk, aren’t you?

https://www.kickstarter.com/projects/limerence/limerence-watches?ref=discovery&term=watch

Thousands of people like this one raise money for their new business ideas through the Kickstarter platform.

Don’t thank me.

 

[Mr D]

What if you simply went and got a cheap Rover or Subaru for £600–£800 (not a lemon)?

I did get a cheap car.

Back then it was an Austin. Using up several months savings in order to fund it was not an optimal solution, bank loan was.

 

[Violinni]

I did get a cheap car.

Back then it was an Austin. Using up several months savings in order to fund it was not an optimal solution, bank loan was.

£5,000, or even £10,000 is cheap by many people’s wicked standards.

 

[Mr D]

£5,000, or even £10,000 is cheap by many people’s wicked standards.

Usually spent a LOT less than that on cars.
Past 10 years have owned a car worth a fraction of its MOT cost. Probably 90% of the time when not using lease cars have had older 2nd hand ones.
Not junkers when I buy them, not ultra cheap ones you see for £200 on a used car lot.

 

[Violinni]

Usually spent a LOT less than that on cars.
Past 10 years have owned a car worth a fraction of its MOT cost. Probably 90% of the time when not using lease cars have had older 2nd hand ones.
Not junkers when I buy them, not ultra cheap ones you see for £200 on a used car lot.

For £200 you can buy a great vehicle...without the wheels, the steering wheel, and most certainly — without an engine.

And when I said “£200”, here in Bulgaria, I can often see old geezers (50 >) driving 1995 RHD cars like Renaults without the paint (only primed).
Or in some cases — one or two old BMWs...or Honda Civics.

 

[fisicx]

There are plenty of decent cars for sale in the UK that cost under £1k.

Things may be different where you live but here in the UK there is a thriving market for cheap and legal runners.

 

[youngtrepreneur]

Thanks for all your advice guys, I really appreciate it.

Best wishes of the season to you all.

 

[Violinni]

There are plenty of decent cars for sale in the UK that cost under £1k.

Things may be different where you live but here in the UK there is a thriving market for cheap and legal runners.

That’s why they purchase there, drive here, and try and sell them here. I think it’s okay to drive a RHD vehicle in a LHD country only if it’s not your primary EDC car, OR if it’s a vehicle that’s only produced in a RHD setup, like the Nissan Skylines.

But driving a RHD £700 Audi in a LHD country is utter uckers.

 

[Violinni]

Thanks for all your advice guys, I really appreciate it.

Best wishes of the season to you all.

Warmest wishes and happy holiday, mate!

 

[Noah]

to what extent do you think I need to write an 80 page business plan covering the next 5+ years at prestart-up stage?

I don't know about crowdfunding expectations, but I think you might misunderstand the point of a business plan. In my humble opinion, it is for yourself primarily - how can you be confident your business is realistic without a detailed plan? Yes, it's difficult, with many how-long-is-a-piece-of-string values to be estimated, and complex interdependencies - but you need to have that information anyway eventually when you are actually running the business.

Just one example from my own experience : landlord tried to add service charge after HoT agreement on lease; plugging that in to my business plan showed that increase was unaffordable. I showed the landlord the numbers, explained it was in neither party's interest to go bust in the first year, but he did not budge, so we had to find an alternative property.

Epilogue : still in cheaper alternative property in similar location, and original property stood unlet for several years.

 

[Mr D]

Plus how can you measure success if you don't know what the milestones for success are? If business is doing below or above expectations you can look and see why. Without having expectations you don't know what you are looking for or that you are off course.

And crowdfunding is still selling to people - if no plan then have to rely just on the idea.

 

[obscure]

Thousands of people like this one raise money for their new business ideas through the Kickstarter platform.

No they don't. As has already been explained they raise money for products or ideas that people can believe in/want. It just so happens that, in some cases, people end up running/owning a company as a result.

The OP needs to present a compelling concept. If he can do that he will get funding. If he just presents the idea that people pay money so he can have a company he will fail.