• How the venture investment landscape is changing and what it will mean for entrepreneurs.
• The different models of crowdfunding and what they are suited to.
• How Trampoline organised a successful equity crowdfunding project.

See the full details for time and location. Tickets cost £40 but if you contact us we can arrange a 50% discount for a limited number of guests. The event is organised by Keystone Law, a UK firm of solicitors mainly working with start-ups. They’re one of the few firms taking an interest in crowdfunding at the moment for which I applaud them.

UPDATE here are my slides from the presentation

All previous platforms have shied away from equity ownership. After the experience of structuring Trampoline’s equity crowdfunding process I can fully understand why. The thorniest regulatory conundrums are concerned with situations where people put in cash and get equity. Consequently crowdfunding platforms like Bandstocks and Sellaband (which has recently seen some turbulence of its own) have tended to structure themselves as clubs. In this model investors pay a membership fee which gives them the right to a share of profits from projects they back. No equity changes hands.

However after registering with GrowVC and spending an hour on the platform it looks like there’s no equity element after all. Disappointingly the platform appears to be structured on the club model. Entrepreneurs, investors and “experts” pay a monthly (or annual) fee. 75% of the fees are invested in ventures selected by the investors. 75% of the money from a venture that reaches exit is distributed to the investors who voted for it.

If this analysis of GrowVCs model is correct I don’t believe it has any chance of succeeding. The relationship between an investor and a venture is indirect and woolly. What happens if a venture is restructured? Or if an entrepreneur issues equity to investors outside the GrowVC scheme? GrowVC investors have no control and little security regarding the ventures they back. Under such circumstances no intelligent investor will be comfortable staking more than pin money.

It’s a shame because the platform looks well-designed and the world really could do with a proper equity crowdfunding platform. We’ll just have to wait a little longer.

I tried to present an uncoloured account of my experiences raising money from friends and family, venture capital funds and most recently through crowdfunding; highlighting the pros and cons of each. In relation to venture capital I particularly wanted to draw attention to the negative impact of preference shares, stealth control mechanisms like “reserved matters”, increased complexity in governance and the pressure to exit prematurely that can arise towards the end of a fund’s life-cycle. In my experience there is not nearly enough awareness of these issues in the startup community.

I enjoyed giving the talk. Thanks to everyone who was there for listening so attentively and for the interesting conversations after my session. Thanks in particular to Christian for inviting me.

UPDATE – Here are my slides from the presentation.

Now the first tranche is complete we’re going to put all our focus back into growing Trampoline’s business. Sometime towards the end of January 2010 we’ll start preparing the second tranche.

In the article investor Jon Moulton makes an interesting point about the destructive impact of preference shares at times like this. He observes that they make it difficult to tell how much shares are worth and create a disincentive for early-stage investors to support ventures in a down round once a VC has come in. He also suggests that the main reason VCs insist on preference shares is to protect an unnaturally high share price. I think Jon’s points are spot on. However the use of preference shares is so firmly established in the VC culture that it’s hard to see that changing.

The article features Trampoline as a case study of how established ventures are finding alternative routes to raise capital.

First, the early commitments we received mostly came from people who already had some connection with Trampoline. This included customers, friends of shareholders and friends of analysts who’d written about us. These people were only one or two or steps away in Trampoline’s network so there were direct personal experiences and trust relationships. This provided the foundation for them to commit quickly and take advantage of the “early bird” share price.

Second, whilst we were planning the crowdfunding process I spoke to several established technology entrepreneurs for advice. As well as giving me their feedback and suggestions these people introduced me to other figures in the technology and entrepreneurial world, who in turn made further introductions. This cascade process, which was unanticipated, has proven to be immensely valuable. Not only am I learning from people who have created hugely successful businesses, several of them also want to invest or play a strategic role in Trampoline’s development. Having even one of these people involved in the company could be transformational.

Third, since we launched the initiative there’s been a steady stream of high net worth individuals certifying on the website and approaching us to find out more. I would estimate that something like two thirds of these people are professional angel investors, who have invested in multiple growth businesses and know exactly what they’re looking for. The remaining third are wealthy individuals who don’t have a long track-record of venture investing but they heard about what Trampoline was doing and were intrigued about the opportunity. These people, both the experienced angels and the first-time investors, have no previous connection to Trampoline either directly or through their network. Consequently there is a different pace to discussion as trust is established and information gathered. Access to due diligence materials is particularly important for these investors.

Fourth, and somewhat to my surprise, we’ve been approached by several venture capital funds who are interested in participating in the crowdfunding offer. I expected the model would be unattractive to VCs because we’re offering ordinary shares without the preference rights VCs usually demand. However I suppose it’s a good way for a fund to make a small bet alongside others, with minimal management overhead. But it remains to be seen whether these funds will actually come through and invest.

Those are my observations to date. It’s been wonderful to see so many people discussing what we’re doing. Right now I suspect opinion is split with a lot of people still sceptical that crowdfunding can work for a business like Trampoline. On current evidence I’m optimistic we’re going to dispel that scepticism.

In the immediate aftermath of the Techcrunch article Trampoline’s crowdfunding website was visited by 1,500 people from 70 countries around the world and 200 people posted messages to their networks via Twitter. Many of the comments came from entrepreneurs applauding the example Trampoline is providing of an alternative to VC.