Hanging out with in crowd

Tue, Apr 10, 2012, 01:00

Never mind the brokers and lenders, crowdfunding is the cool new way for individuals to get involved in the investment game, be it in property, start-ups or the arts

EVER FANCIED being a movie mogul? Or a property developer? Or how about an angel investor to rival those on Dragon’s Den? Well, now you can through the magic of crowdfunding. By pooling together your funds with those of many, many others, you can access a range of investments that otherwise would have been out of your reach, or else you can put your money towards a creative project you believe in.

TECH START-UPS

Ever wish you were like Seán Parker of Napster fame, who turned his investment in Facebook into billions? Well, you mightn’t reach quite as high as him, but access to early-stage companies is now possible through ventures such as seedups.com. So, if you want to rival one of the great Silicon Valley venture capitalists, you could consider crowd-sourced funding which offers money for start-ups by connecting companies and investors.

It’s a trend that’s catching on. In the US, a crowdfunding bill, which would allow investors to own equity in companies they back as part of a group, is expected to be signed by President Barack Obama shortly. Up until now, crowdfunding has been possible largely through philanthropic sites such as Kickstarter, which companies such as Double Fine Adventure have used to raise more than €3 million from more than 80,000 backers to create a videogame. Soon, however, investors can put their money in with an eye to making a profit.

In Ireland, the Business Expansion Scheme, now known as the Enterprise Investment Scheme, could be seen to be an early form of crowdfunding, as it allowed investors to pool together in a structured investment to fund a company and earn tax relief and a potential return on their investment. But the concept may soon become much broader. Irish company seedups.comis blazing a trail in the sector, and since launching in February 2011, it has attracted more than 1,200 tech-entrepreneurs seeking to raise money through crowdfunding, and 600 investors. According to founder Michael Faulkner, half of all companies looking to raise funds through the site are from the US, with a fifth from Ireland. To date, €40 million has been pledged through the site, despite the fact that it is currently only open to “sophisticated” or high net-worth individuals, in line with Irish regulations.

However, as Faulkner indicates, if the US goes ahead with its crowdfunding act, which will allow investors take equity stakes in companies, a “domino” effect could see similar legislation introduced in Ireland. This would mean that investors could bid to invest on projects ranging from €250 to €10,000.

PROPERTY

In the UK, crowdfunding has even spread to property development – and Irish investors beware, the concept is open to investors from Ireland also. The House Crowd, which has been put together by property developer Frazer Fearnhead, is now offering investors the chance to buy into property for just £1,000.

According to the House Crowd, which launched last month, “It’s about investing together and sharing together. No banks. No expensive mortgage arrangement fees. No credit checks. And no property finder’s fees.”

It works by investors clubbing together to purchase a distressed property, which is then refurbished and rented out. Returns will “typically” be of the order of 6 per cent, plus investors also share in the profits when the property is sold. According to The House Crowd, it will aim to sell most properties within three years, and it estimates the total return to investors at about 15 per cent.

MOVIES, PLAYS AND MUSIC

If you’re an avid arts and culture fan – or are looking for a special present for such a person – crowdfunding can put you right at the heart of a production of a movie, book, play or album. Last March, Business to Arts, which promotes creative partnerships between business and the arts, set up fundit.ie, to help fund creative projects. According to Stuart McLoughlin, chief executive of Business to Arts, the website has done “extraordinarily well” in its first year, with 11,500 pledges raising €632,000 in total, which helped 143 creative projects come to fruition.

Irish director Mark O’Connor used fundit.ieto raise money for his third feature film, Stalker, about a homeless man who strikes up a relationship with a disaffected teenager. He raised more than €15,000 for the movie, which is planned to launch at the Galway Film Fleadh in July. Similarly, musician Julie Feeney used the platform to raise more than €23,000 to fund production for her next album.

According to McLoughlin, once a project meets its minimum target, which is typically about €3,500 to €4,000, donors’ credit cards are debited for the pledges promised. If, however, it doesn’t meet this target, cards aren’t debited and no one is charged any money, so there is no issue of people contributing money to a project that never gets off the ground.

So what do you get for your money?

Well, on Mark O’Connor’s movies, for example, investments ranged from €10 to €2,000, with an investment of €250 entitling you to become a co-producer of the film, with your name appearing on the movie credits, an invitation to the wrap party and a private screening. For €1,000 you could have been an executive producer, and for this, you would even have got to act in the movie.

And there are plenty of other opportunities that allow you to play a key role in ensuring projects that may interest you come to fruition. Drunk Tank Productions, for example, is hoping to bring its production of A Midsummer Night’s Dream to the 2012 Edinburgh Fringe Festival, and is raising money to fund this. If you contribute €500 to this project, it entitles you to a “Fairy Fun Pack”, which includes a performance of the play in your home or a nearby park, provided that you live within the Dublin area and it takes place before June 14th.

Similarly, CheeryWild Productions recently used fundit.ieto raise money for its production of the play Love All. A €300 contribution would have enabled you to have the play performed exclusively in your home anywhere in Ireland.

For McLoughlin, the attraction of fundit.ieis that it helps you to be a part of the creative process. So, if for example you would have previously paid €15 to buy Feeney’s new album, by contributing your money at an early stage in the process, you can ensure that the music you are interested in gets made.