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CROWDFUNDING & SQUAREKNOT – HOW IT WORKS DEREK BOND CO-FOUNDER & MANAGING DIRECTOR

CROWDFUNDING & SQUAREKNOT – HOW IT WORKS DEREK BOND CO-FOUNDER & MANAGING DIRECTOR SQUAREKNOT LIMITED. WHAT IS CROWDFUNDING?

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CROWDFUNDING & SQUAREKNOT – HOW IT WORKS DEREK BOND CO-FOUNDER & MANAGING DIRECTOR

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  1. CROWDFUNDING & SQUAREKNOT – HOW IT WORKS DEREK BOND CO-FOUNDER & MANAGING DIRECTOR SQUAREKNOT LIMITED

  2. WHAT IS CROWDFUNDING? Crowdfundingis the concept of funding a project or a business through a large number of people who ‘invest’ a relatively small amount each, usually through a web-based platform.

  3. WHAT ARE THE DIFFERENT TYPES OF CROWDFUNDING? 1. DonationCrowdfunding 2. RewardCrowdfunding 3.Loan/DebtCrowdfunding 4. EquityCrowdfunding

  4. SOME OF THE MAIN CROWDFUNDING PLATFORMS Donation & Reward _______________________________________________________________________________________________________________________________________ Loan/DebtEquity

  5. SUCCESSFUL DIY CROWDFUNDING • Brewdog – share issue prospectus approved by FCA • Round 1 in 2009 raised £750,000 in 5 months • Round 2 in 2011 raised £500,000 in 2 days (total £2.2m) • Round 3 in 2013 raised £1m in 24 hours (total £4.25 million) • Rewards = free beer!! • Obama used donation crowdfunding to fund presidential campaigns • Raised $750 million in 2008 • Raised $631 million in 2012- $214 million dollars were small donations • Single email in June 2012 raised $2.6 million

  6. BUSINESSES – WHAT ARE THE BENEFITS OF CROWDFUNDING? • BANKSDon’t need to deal with banks and other traditional lenders • MARKETING Promote business through the crowdfunding pitch • CUSTOMERS Investors become long-term customers • REWARDS Added incentive to investors • REWARDS Reduces amount of equity given away to investors • CONTROL Don’t lose control of business to Angel investors • PERSONAL Build personal/business relationships with investors

  7. HOW WILL SQUAREKNOT FACILITATE FUNDING FOR BUSINESSES? Squareknot is the first platform to offer all UK companies the opportunity to apply for any combination of equity, reward and debt crowdfunding, in affiliation with Business Angels. EQUITY REWARDS ANGELS DEBT

  8. TYPICAL SQUAREKNOT DEAL STRUCTURES FOR A START-UP BUSINESS

  9. SQUAREKNOT v OTHER CROWDFUNDING PLATFORMS? • Large database of potential investors • Different types of funding options • Assistance in business planning and valuation • Benefit from expertise and experience of Business Angels • Pitch marketing advice and assistance • Squareknot are approved and regulated by the Financial Conduct Authority

  10. WHAT BUSINESSES CAN RAISE FUNDING THROUGH SQUAREKNOT? • UK registered limited companies • Start-ups • Businesses in early stages of development • Established companies • All sectors • Working capital support • Product R&D • Funding for expansion or acquisition • Asset purchase and capital project funding

  11. HOW MUCH CAN A BUSINESS RAISE ON A SQUAREKNOT PITCH? • No defined lower or upper limits • Normal range will be between £30k and £250k • Examples: • £35k equity pitch for a zorbing run in Edinburgh • £50k reward & equity pitches for a football club • £125k equity/reward pitch for satellite broadband coy • £200k equity pitch for a software development coy • £450k debt pitch for a residential property development

  12. SPECIFIC AREAS THAT SQUAREKNOT SPECIALISE IN SPORTS FOOD & DRINK START-UPS

  13. WHAT HAPPENS IF THE TARGET LEVEL OF FUNDING IS NOT ACHIEVED? If the business pitch does not achieve 100% of its funding target within the agreed listing period, then the committed investments are cancelled, the pitch is closed, and Squareknot earn no commission.

  14. INVESTORS – WHO CAN INVEST THROUGH SQUAREKNOT? • UK resident - 18 years old or older • Have a valid UK bank or building society account • Can use a Pension Scheme to make loans/investments • Equity & Debt Investments - Professional Investors only • By self-certification, or • By correctly completing a short questionnaire • Reward Pitches – no restrictions • Minimum investment £100 • Maximum on-line investment £10,000 (contact Squareknot to make investments greater than £10,000)

  15. WHAT DUE DILIGENCE DOES SQUAREKNOT UNDERTAKE ON INVESTMENT PITCHES? • We undertake a review of the information that a business provides, and obtain evidence to support factual statements where we feel that it is appropriate to do so • We use an FCA compliant checklist, however potential investors should not rely upon our due diligence when making investment decisions • We only post investment pitches that in our opinion provide investors with a clear and unambiguous investment opportunity • We do not provide any assessment or grading of the risk of specific investment pitches – we leave potential investors to make their own assessment of risk

  16. WHAT ARE THE COSTS FOR BUSINESSES? Commission fees for businesses on successfully funded pitches will be: Equity/Reward - 5% of the total amount raised, (minimum charge set at £2,000) Loans- Between 2% and 5% of the total amount raised (depending on loan term) Other fees: •  Listing/Administration fee - £500 • Legal costs – estimated £700 to £1,000 • Business Observer fee - £5,000pa (only for certain businesses that raise more than £100k – at discretion of Squareknot)

  17. WHAT ARE THE COSTS FOR INVESTORS? • There are NO COSTSfor investors to register as a Squareknot member, browse the website, interact with business owners and other investors, or make investments. • Squareknot will take a 5% commission fee from any equity dividends paid and of any capital gains on the sale of shares. • Squareknot will take a commission fee equivalent to 1% of the initial amount of a loan, and this commission will be deducted on a proportional basis each time a repayment is made by a borrower.

  18. WHO ARE SQUAREKNOT? • Derek Bond– Chartered Accountant with extensive operational management experience • Brian Smillie– an experienced marketing professional who founded and sold his own creative agency • Tom Preston – Chartered Accountant and Business Angel • Iain Young – a corporate lawyer and business advisor with real entrepreneurial flair • Kirsten Buchanan – marketing & communications executive • Business Observers – a panel of experienced business professionals

  19. SEIS TAX RELIEF • 50% Income Tax relief on amount invested • No Capital Gains Tax on gain on sale of shares • Loss relief if shares are sold at a loss • Income Tax position for a 45% taxpayer who makes a qualifying SEIS investment of £1,000, and the company subsequently goes under resulting in a total loss for the investor is: • Income Tax Relief (£1,000 x 50%) £500 • Loss Relief (£1,000 - £500) x 45% £225 • Total Tax Relief £725

  20. SEIS TAX RELIEF – QUALIFYING CONDITIONS • Investor must hold shares for 3 years • Investor maximum amount of investment in any year - £100,000 • Investor cannot hold more than 30% of shares in the company • Investor cannot be an employee of the company • Company must be a UK registered unquoted limited company • Company must have less than 25 employees and gross assets of less than £200k • Company must have traded for less than 2 years • Excluded trades include: dealing in land, financial activities such as banking, insurance, financing, providing legal or accountancy services, hotels & nursing homes • Company can only raise a maximum of £150,000 in total through SEIS

  21. SEIS TAX RELIEF – THE POTENTIAL BENEFITS • Create a portfolio of 10 x £1,000 investments – initial net cost of investment = £5,000 Scenario 1 • 9/10 companies fail – loss relief (9 x £500 x 45%) = £2,025 • Net cost of investment in 10 companies = £2,975 • 1 company makes a 3 times return on investment – gain £3,000 • Overall position is a profit of £25 Scenario 2 • 7/10 companies fail – loss relief (7 x £500 x 45%) = £1,575 • Net cost of investment in 10 companies = £3,425 • 3 companies make a 3 times return on investment – gain £9,000 • Overall position is a profit of £5,575 (more than 100% return on initial net investment)

  22. ANY QUESTIONS? Derek Bond derekb@squareknot.co.uk Mobile – 07717 432091

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