OPINION: Why people are turning to crowdfunds

13 Dec 2016

By: Sport Industry Group

Former GB cyclist and entrepreneur, Yanto Barker discusses why more and more brands - including his own - are turning to crowdfunding...

Crowdfunding is a marketplace that has grown significantly in the last few years with the total crowdfunding industry in Europe estimated to have been £5.1 billion in 2015. That’s an annual growth rate of 98.6%.  

As founder of Le Col, a premium cycling apparel brand which already sells its garments to customers in over ten different countries but has plans to expand, I believe we are perfectly placed to take advantage of crowdfunding.

Crowdfunding platforms come in three forms: donation, equity and debt. On donation-based platforms such as Kickstarter, investors make a pledge to a product they wish to support, and in return receive a pre-determined reward based on how large the donation was.

Alternatively, equity crowdfunding sites, such as Crowdcube (which Le Col has opted for), work very similarly, but investors receive a proportionate amount of equity in return for their money. Crowdfunding is therefore a great opportunity for people to invest in and benefit from exciting journeys, such as ours. Finally, debt crowdfunding sites like Prosper, Funding Circle and LendingClub allow lenders to provide needed debt financing and as a result the lender receives a debt instrument that pays interest return. Like equity crowdfunding, debt crowdfunding expands the possibilities for many businesses looking to find a non-bank solution for sourcing the necessary capital. Because of its unique position and structure, debt crowdfunding is actually preferred by many investors who prefer the steady income available.

Crowdfunding can be very beneficial especially for start-ups or relatively new businesses, as not only is it a place to raise money, it is also a place to market your product. The project page is effectively the pitch, which entices investors in by reaching out far and wide in order to gain support, simultaneously capturing several audiences. The internet is therefore the perfect tool for growing a crowdfunding campaign, as well as social platforms becoming more and more useful to spread the word.

With cycling on the rise in the UK, especially since Team GB’s success at Rio 2016, there has been large growth in the clothing and accessories markets. This has grown by 27.6% since 2010 and is expected to be worth over £1.8 billion by 2020. However, despite cycling's continued popularity, crowdfunding platforms house thousands of ongoing projects every day - so why would a company like Le Col be any different?

However, since it was founded in 2009, Le Col has always had the ambition to create beautiful, performance enhancing clothing that can appeal to all levels of cyclist. Due to the continued interest in the sport and all products relating to it, we saw a potential opportunity to raise capital through a round of crowdfunding. We aim to raise £1 million by 16th December to increase market share in existing regions, as well as to help to introduce the brand to new markets - which requires a significant marketing budget to increase awareness. There is also budget needed for ongoing product development to create innovative designs to stay ahead of our competition.

However, as with everything, there are factors of risk and this is something we, and other companies have to take into consideration when launching a round of crowdfunding.

Getting the campaign noticed can be a tough hurdle to get over, and therefore celebrity endorsement can be a popular method for companies to heighten interest for potential investors. In the case of Le Col, my own 20 years of experience as a professional in the sport has helped cyclists and investors alike believe in what we produce, simply through the insight we bring to our products. 

Finally crowdfunding has, time and again, proven its ability to set trends and point entire industries in new directions. So if you’ve got an innovative idea, crowdfunding may prove to be the best method to market. Whilst some may fall into the trap of believing that crowdfunding is a quick or easy option, enabling businesses to short cut the time spent exploring more traditional sources of funding, and the rigorous vetting processes involved, that would be somewhat misleading. With the input of independent financial consultants to provide external verification, Le Col embarked on a process of detailed market research and business analysis over a period of almost a year in order to identify the opportunity, and build a strong business plan that we could take to the crowd with genuine confidence. 

With proper planning and execution, a crowdfunding campaign can harness the communicative power and huge reach of internet, and is the reason why it is going from strength to strength, particularly amongst innovation led businesses.

To find out more about Le Col, click here.