Funding Tree: Harnessing the true power of crowdfunding
By Crowdfund Vibe Editor
The United Kingdom is acknowledged as a world leader in crowdfunding. In addition to its well known websites – many of whose founders have visited Asia & the Pacific – there are some newer platforms bringing further innovation to their vibrant sector. In this article we interview CEO & co-founder of Funding Tree, Dillen Iyavoo.
Crowdfund Vibe: Can you tell us about Funding Tree and what is unique about it?
Dillen: Funding Tree is the first fully regulated crowdfunding platform in the UK that is able to raise both loans and equity investment from investors for businesses seeking finance.
Funding Tree’s roots are entrenched in the ideology that concept of crowdfunding should apply to all types of businesses – not just start-up businesses offering equity deals. To that end, our hybrid platform is designed to help businesses at any stage of their life cycle: from raising equity for a fantastic ground breaking idea, to loans to fund expansion, buy assets, or increase working capital, to helping an established business find new equity investors to help buy out their nearest competitors.
Crowdfund Vibe: Why has Funding Tree adopted this dual approach?
Dillen: There has always been a lot of hubbub about the catalyst behind the crowdfunding revolution, which is said to be the global financial crisis of 2008. This isn’t entirely true. A reduction in bank’s lending didn’t affect start-up businesses anywhere near as much as it did SMEs. Banks were never routinely providing loans to start-ups, yet many equity platforms continue to sell themselves as offering businesses an alternative to banks – when in reality equity crowdfunding platforms were never in a position to fill the void left by the banks.
The collapse and subsequent weakening of the banking system meant that many SMEs with legitimate cases for business loans were being denied money vital to their existence, stability and growth. Evidently this meant that a crowdfunding model was needed to cover the loan aspect of business lending; and that’s partly the reason why we wanted to provide a hybrid platform so we could fill the void left by banks while also helping start-ups onto the first rung of the ladder of growth.
This approach meant that there would be no exclusive element to our model; because, unless you happen to be a start-up business, the more traditional equity crowdfunding model is unfairly divisive. With our platform we are able to accept businesses from right across the spectrum.
We’ve spoken about why the loan model is important (taking the place of crippled banks) but the equity model is equally as important because you get some innovative, sometimes hugely disruptive start-up businesses which are often a lot more exciting than established businesses and can grow on a much grander scale, providing more jobs and circulating more money in the wider economy. People like excitement and love seeing potential. So with our platform, we offer sound businesses operating at a profit mixed with more adventurous start-up and early stage businesses. Not only does this allow our investor network to build hugely diverse portfolios, but it also means we’ve become a modern day bank, which was our intention from the outset.
Crowdfund Vibe: A modern day bank? Is that how do you see your platform evolving?
Dillen: Certainly. What’s interesting is that we can – if necessary – build relationships with these great businesses so they don’t have to look at us as just a one off, flexible route to finance. They see us as offering continued support, helping them to get off the ground, expand and acquire, for instance. So, actually, when you think about it, we’ve become more than a bank: we can provide funding for all these types of businesses, meaning we’ve more than just filled the void, we’ve filled the entire funding spectrum with a powerful, all-encompassing platform.
We like to think we’re friendlier than a bank too… Our investors and businesses are very important to us, so we like to keep the lines of communication active and responsive to ensure our network is happy.
Crowdfund Vibe: Can you give us an example of how your platform works?
Dillen: Of course! Recently we worked with an established Wolverhampton-based business, which travels around the UK with a unique science roadshow teaching pupils about science with the aid of real life labs. Dedicated to educating young people on the benefits of science, Classroom Medics struggled to get a loan from their bank despite successfully repaying a loan of £50,000 previously, and despite showing a monthly turnover of tens of thousands of pounds. They came to us to raise £25,000 so they could meet increasing demand for their service.
Their application took eight days to process – setting a platform record – and their crowdfunding pitch went live on the 21 November 2014. With past partnerships with the BBC and Sky Sports outlined in the online business pitch as well as details of monthly profits of £10,000, the campaign received immediate interest from investors. It closed on 7 January this year having accumulated 183.5% (£45,870) of its target thanks to 65 investors. Due to our rules we ended up funding them £27,500 (110% of the funding target) and returned the unsuccessful pledges to investors.
The owner of Classroom Medics, Tom Warrender, said he couldn’t believe how quick the application process was. He told us “The speed of it all and being able to see the investors start to invest in the campaign over the days is a great boost as they have confidence in your business and want you to flourish.”
From our perspective we recognised that Classroom Medics is more than just a business. It’s an educational tool that state schools, private schools, colleges and universities can use to enlighten their students on the benefits of science. This is a company that is bringing textbooks to life. I think we’d all have liked that during our times at school.
Without crowdfunding or, indeed, our platform, the business would have found it difficult to keep moving forward and developing as a business. Because we offer both debt and equity fund raising options to businesses, Classroom Medics was able to choose which funding option was best suited to them, and obviously, because it was able to show a monthly turnover of around £30,000, it could choose the debt option and keep hold of all the equity.
Crowdfund Vibe: That sounds like a a good outcome. Finally, do you have any plans to come to the Asia- Pacific?
Dillen: Not at the moment as we are focusing on our UK operation at present, where the government has authorised both equity and loan crowdfunding. We are also starting to set our sights on the US market where legislation is beginning to warm to the idea of non-accredited investors using crowdfunding platforms. We would love to come out and explain the concept, though, as we think it has application in many parts of the world.