We have dealt already several times with crowdfunding on this blog. As I explained in a post not so long ago several alternatives exist (in terms of business model). I explained the model of Look&Fin (a relatively –yet with good media exposure- new entrant on the market) and stressed some weaknesses.
Yet, despite these weaknesses, I must admit I’m pretty impressed by how well they are doing and the quality of their pick. The ventures they selected to put forward on the platform seem indeed to respect the payback periods.
The success of crowdfunding shows how banks failed to fulfill their mission
Read or re-read the post we wrote about Ethnik, this new store launched in Brussels near Schuman with our help. Banks did not help at all gather the few thousands euros needed. The frustration caused explains partly why crowdfunding is so successful and so attractive. Entrepreneurs engage, when going to a bank for a loan, in a long (several months) obstacle race the rules of which are not always clear. The promises to respond within 24 hours is, most of the time, true when it comes to receiving a negative answer. Banks are quick at refusing.
The crowdfunding process is quicker to set up; the risk being spread over dozens (sometimes hundreds) of investors, it is also quicker to gather the money. What is also interesting is that the process can be used as a mini-market research. If your offer is as attractive as it seems, people will be quick to commit. You should however never forget that the audience of crowdfunding platforms is not homogenous. It is biased actually.
Look&Fin is an interesting alternative for local brick-and-mortar projects
For all non-techie non-geek projects crowdfunding is more difficult to use … unless you find the right platform. MyFirstCompany was one of the few available alternatives but it closed down. Look&Fin remains and based on the first KPI’s and latest news they published on social media, it seems to work indeed. Yet, even with a crowdfunding platform, there are selection criteria and they are strict (which probably explains why the selected companies have no problem to repay).
Banks only give loan to zero-risk projects
The successes of Look&Fin’s “customers” exemplify our statement that banks fail to understand the dynamics of businesses. In the present case three companies (Mamma Roma, the bakery Le Saint-Aulaye and Be-Positive), active in three different sectors, with a business history and existing tracks of records, were rejected by banks. They were however judged acceptable (based essentially on financial criteria) by the Look&Fin’s team and eventually got funded by the crowd. And it did work.
Why did it fail ? Because bankers rather look at WHO you are than at WHAT you want to do. They analyze your personal assets (and how they can be used to reduce the bank’s risk to zero) rather the very content of your project. In other words if you don’t have a flawless track of records and personal assets, chances are high that you won’t get a loan.
There are of course other types of financial organizations that help specifically entrepreneurs; we tried those too but were, once again, disappointed by how overall judgments were made without trying to understand the very dynamic of the project. Fact is : the project actually got launched without the help of financial institutions.
Advice for your business plan
To close this series of post on the Ethnik project, I think the wiser advice I can give is to set up a financial plan that leave little or no space to bank loans. Think about friends, family and the like to find the money (this is actually what enabled the Ethnik project to be realized) and if you absolutely need external money first go to a public institution before filling a file in a bank. It will save you precious hours of work and many headaches.
Posted in Entrepreneurship.
