ARE YOU IN?
How crowdfunding is changing the way we think about cycle products
So... are you in?
Welcome to the world of crowdfunding, the internet-engineered investment phenomenon that’s fuelling a cycling revolution. Regular readers will note the ‘ New Gear’ section of Urban Cyclist frequently features bikes, accessories and cycling gadgets that are either seeking crowdfunding or has only seen the light of day because of cash that’s been pledged and sourced via this virtual, viral sponsorship form. “Cyclists have embraced crowdfunding as it’s innovative and appeals to a sense of community,” says Luca Amaduzzi, co-founder of London brand CYCL (www.cycl.bike) and creator of WingLights. Amaduzzi’s not being hyperbolic – crowdfunding has democratised the way people raise funds, while allowing entrepreneurs to keep control of their business.
It’s enabled start-up innovators to garner valuable market insight, to test and validate their products, as well as being a useful marketing tool. As a result of the growing devotion to crowdfunding among cyclists around the world, the likes of Matt Mears, founder of Bristol-based Temple Cycles, is looking to find new investors to take his company up a gear. “There are different types of crowdfunding,” explains Mears. “The most common is Reward Crowdfunding, where a company takes a prototype to market to secure pre-orders. Kickstarter is the leading website for that kind.” Then there’s Equity Crowdfunding. “This is where a company sells off a percentage of its potential to investors – they’re buying shares in digital businesses via online platforms such as CrowdCube and Seedrs,” Mears continues. “It’s for securing long-term investment and, further down the line, the investor might sell their share, either back to the company or to a larger firm that may buy into the original one.” For Amaduzzi and his business partner, Agostino Stilli, their initial foray into Reward Crowdfunding has since led to further investment. “We made a working prototype as we would have needed more money than we had to take it to a manufacturer. We spent hundreds of hours designing and working out production for our idea [Agostino’s PHD is in Robotics and Luca Mastered in Innovation] but we needed the money to take it to the next level.” That’s where the crowds of funding cyclists came in. In order to manufacture a saleable batch of their unique bike indicators, CYCL
needed £8,500 up front. In the past the most common cash source would have left them at the mercy of a bank manager and accruing interest on a loan before the ink on the cheque had dried. But we live in a crowdfunded world these days.
Indicators of success
They shot a video featuring their prototype, filed an application to crowdfund, and launched and uploaded their appeal to the Kickstarter website in December 2014. Their lights caught the eyes of over 600 backers. In just three days they reached their target amount. And then their campaign went viral. “In 30 days we’d raised £17,000,” says Amaduzzi. By Christmas 2016 CYCL had sold over 16,000 WingLights, contributing to a company turnover of £215,000. Equity crowdfunding has since followed in the shape of a £45,000 business investment from the Moonpig.com founder Nick Jenkins after Luca and Agostino pitched to the Dragon’s Den TV show. Jenkins gets a 12.5% share of the company in return for saying ‘ I’m in’. “The cyclists who have bought into WingLights see a product that’s a good idea,” says Amaduzzi. “It was developed following our personal experiences of navigating London streets. For the funding to work, the crowd needs to see something in that pitch that they can picture themselves and others using.
To date Morpher has sold more than 4,000 helmets and its customer base continues to grow
“What you don’t expect with a crowdfunding campaign is for people to pledge money just to help you get started. Cyclists would buy more units than they needed, just to help us grow – plus you get feedback and advice. But we are really lucky and know that this may be unusual.” Except that their story is not so unusual. “We’ve crowdfunded our SpeedForce cycling computer, our Leopard road bike and the Unicorn road bike using Kickstarter,” Raggy Lau of SpeedX, a Beijing-based brand, tells us. “We used Kickstarter as it’s six times bigger than the number two platform, Indiegogo.” Coming to the crowdfunding market with that combination of novelty and new technology appears to be the magic formula. Inventor Jeff Woolf, who used Indiegogo, created the Morpher Flat Folding Cycle Helmet after nearly dying in a bike accident. Once Jeff had developed a prototype hat, he shot a demonstration video, uploaded it to Indiegogo and sent press releases out to city cyclists. “I chose Indiegogo because it had an international reach. I’d set the goal at $35,000 (UK £27,800) and smashed through that in two months, and the orders are continuing to roll in three years down the line.”
Playing the equity card
To date Morpher has sold more than 4,000 helmets and its customer base continues to grow. Having been successful through reward crowdfunding, Woolf, much like Matt Mears at Temple Cycles, is now looking to attract investment into the potential to grow further.
Matt Mears is asking customers, friends, supporters and suppliers to help him grow the business by making equity investments
“We’re about to launch an equity crowdfunding campaign with Seedrs,” he says. “As more bikes than cars are now sold in Europe and the US, the demand for helmets is increasing and we’re starting to work with distributors, agents and some of the 1,000+ bike schemes around the world.” The Temple range of bespoke modern bikes has and capturednow Matt the Mears imaginationis asking of customers,cyclists, too, friends, supporters and suppliers to help him grow the business by making equity investments on the CrowdCube platform. “We run our operation from our workshop in Bristol - we use lightweight and durable steel frames that are painted by a local bike painting specialist and combine this with quality components such as Brooks leather saddles, hand-built wheels, puncture-proof tyres and high-spec gearing. “We’re looking to expand the business, with a goal of £150,000 towards eventually creating 12-20 new roles, including mechanics and admin staff, and to fund marketing, which is something we’ve not really done so far. We’re also keen to attract cyclists who just want to buy into what we’re doing, who hopefully like our products and want to invest whatever they can. It would be great if among those investors we attract people with expertise we can call upon in business promotion as well as those who are just cyclists that love bikes.” For a minimum amount of £10 they can buy share certificates in Temple and, in return for funding further marketing manufacture,of a growing brand company, expansion these and ‘partowners’ will qualify for lifetime discounts or even bespoke bicycles and merchandise depending on the level of investment. “Investing in start-ups comes with an element of risk, too,” explains Mears. But to reduce appealing, that the risk governmentand make crowdfundingset up SEIS (Seed more Enterprise Investment Scheme). “If you’re an SEIS-registered start-up then those who invest in you can claim 50% of their investment back against income tax within the first year – there’s also a protection scheme that guarantees another 30% of your investment is returned in the event of the start-up going bankrupt.” (Just as this issue of Urban Cyclist hit the printers, Mears confirmed they raised a staggering £200,000 in just four days.) It’s that element of risk that dissuades as many as it attracts. Despite the buzz about it in the cycling cafes, not every crowd-sourced initiative sees the light of day. The commonly cited statistic for Kickstarter is that 9% of projects launched on the site never reap rewards – reports suggest that fewer than half of all crowdfunded initiatives ever reach their target. “The main pitfall is that you won’t have reached your goal before the campaign ends and you would have wasted a lot of time and energy get the campaign ready,” explains Woolf. “The key is to have faith in your product, and to build a good and honest campaign.”
Lost in the crowd
In some cases little more than face is lost and dreams are dashed when the funding fails to materialise or the time runs out. Cyclist and canal boat dweller TR McGowran saw his 2015 Crowdfunder.co.uk drive to raise £10,000 for a Bicycle Barge, a floating bike workshop travelling across London along the Grand Union canal, fail despite him having the hulk of a boat ready to refurb. The appeal accrued just £400 in pledges. But even if the crowdfunding hits its target, that is no guarantee that cycling fans turned investors are on to a winner. In 2008, Dublin-based engineer Barry Redmond teamed-up with a silent partner cycling pal to form the Brim Brothers and develop a new type of power meter – one with a USP of being intrinsically and innovatively integrated into a cyclist’s shoe cleats. By early 2016, after almost eight years in development and with Barry now the sole force behind the project, prototypes of the Zone DPMX power meters were wheeled out on to KickStarter as the brothers Brim sought to raise €100,000 from pre-sales and pledges. The pitch reaped in more than €383,000 in no time at all. Then the wheels came off. Barry Redmond soon discovered that what had worked in the design laboratory wasn’t working on the factory floor. A long list of technical faults – including ones linked to the unpredictability of how a cyclist’s feet tend to flex when they pedal – couldn’t be overcome. The cost to produce components that might work escalated way
beyond2016 Brim the Brothers amounts closed already down raised. and In a Octoberwhole crowd of funders – including Redmond who’d ploughed his savings into the power meters – were left with nothing to show for it. Of course, it’s in no-one’s interest for a funding drive to fail – least of all those who are hosting it. “If entrepreneurs raise money through a crowdfunding campaign we charge a small fee (5%),” explains Joel Hughes, UK Head of Technology at Indiegogo. “There are also third-party fees for payment processors, which vary depending on the payment method.”
Not without risk
In the build-up to their (successful) campaign, Matt Mears spent tens of hours preparing the bid, fully aware of what was at stake as he sought to take Temple Cycles to the next level. “We’ve got a solid reputation and a strong base when of you’re support lookingbut at getting equity funding, your business plan is scrutinised much more closely than when you’re putting a new product out there.” Getting the exposure to a wealth of often wealthy cycling enthusiasts, all keen for a slice of the next big thing, has made sites like CrowdCube an attractive market place for established brands as well as start-ups. Huez raised £250,000 to fund further development through a 2016 crowdfunding appeal, and Nick Hussey, the founder of Vulpine, thanks all those who wanted to be ‘part of the journey’ for contributing to a hugely successful investment drive on CrowdCube in 2015. “Cyclists are devotees and I think that’s a key factor when you look at what works in crowdfunding. We’ve got some very big investors on board, but also many who’d buy into us stating how much they just wanted to be a part of what Vulpine stands for,” says Hussey. “I got to know the CrowdCube founders; they’re cyclists and I was riding in the Alps when the campaign launched and I saw on my phone what was happening – we’d initially had a target in mind of a quarter of million, but in five days we’d upped that to £500,000 and achieved that.” The appeal closed after two weeks with Vulpine £1,026,280 the richer for it. Not everyone shares the joy when established cycling merchandisers do well though it seems. “When mainstream brands crowdfund, I find that it’s a bit unbelievable,” says Lau of SpeedX. “Because start-ups are the ones that first need a foundation, a prototypereally for them.”and don’t have that much cash, it’s But there’s no place for sentiment in business, even among a socially aware bunch like cyclists. Ensuring that your groundbreaking idea isn’t simply copied and sold elsewhere once you go live is a concern that Joel Hughes has sought to address. “Since ours is an open platform, entrepreneurs may find campaign products, ideas or company names similar to theirs – when we receive a copyright infringement complaint, we review it and may remove the infringing content or disable user’s access to the campaign in violation.” Hughes points out that it’s still early days for crowdfunding and there are issues that have to be ironed out, but that the future for it among cyclists especially looks rosy. “Everyone can be an entrepreneur, crowdfunding truly is accessible to anyone and can help them not only fund projects, but also grow and strengthen their communities.”
Left Temple Cycles are looking to batch produce steel frames in the UK
Above Morpher’s folding helmet is now in mass production
Left Temple Cycles’ founder Matt Mears (with workshop manager James, right) spent months planning his funding campaign Right WingLights attracted funding from ‘ Dragon’ Nick Jenkins
Left Temple Cycles and founder Matt Mears raised £ 200,000 in just four days