Once upon a time, to start a business all it took was some hard work and a few sales. Find some wild apples, plant the seeds, and voila you have a farm.
Eventually, people formed banks to take loans out for seeds. Then people started venture capital firms to sell equity in future apples in exchange for an investment in seeds today.
The fairy tale of entrepreneurship has gone through several retellings over the years. While starting up a business may not feel as Disney perfect as Cindarella, in some ways the system of financing companies is magical.
A Dublin startup may be sprinkling a little more magic into the world of financing. Spark Crowdfunding aims to be a new avenue for early stage companies to find financing. It is a crowdfunding platform that offers investors equity for backing the projects.
Chris Burge founded the platform as an alternative to other investment systems.
Burge says he was “frustrated by the lack of simplicity.”
Spark works similarly to crowdfunding sites like Kickstarter and Indigogo, except for a few big differences. Like those other sites, investors put up money (anywhere from a couple hundred euros to tens of thousands) to back a campaign. Unlike those sites, investors become part owners in the company.
“The investors get a share in the business, and they hope that business will prosper and grow,” says Burge. “When [the investors] come to some sort of exit in three years, five years, or seven years time, they will get it multiple of there investment back.”
The money raised on Spark is not a gift, a purchase, nor a loan: it is an investment. It’s cash to grow the business now, but it is also more than just money.
Burge says that investor/entrepreneur relationship can be a powerful bond that helps a business grow with immediate public relations exposure.
“[Small investors] have skin in the game,” says Burge.
“They want to see your business succeed. They’ll use your product, and they’ll tell their friends and family that they’re using your product as well.”
Spark currently has one active campaign, and three successfully backed projects. The first batch of companies sought €30,000-50,000, but future campaigns may look for much more.
The current campaign features the Dublin peer-to-peer car rental service Fleet. Founder Maurice Sheehy hope to raise €275,000 for 20% equity. They plan to use the financing to expand the product’s service and licensing options as well as provide cash for marketing. With Enterprise Ireland “High Potential Start-Up” status, some of the money raised on Spark will be matched by EI.
Another successfully funded startup is SnapMail, a Dublin-based personal security app that can with one click snap a photo of a possible attacker, email it to an off-site server, and contact friends. Investors backed founder Sinead Lynch’s campaign to raise €50,000 on Spark in exchange for 10% equity in the company
While Spark platform is relatively new, it is easy to navigate.
That’s a huge advantage for investors as well as the startups they fund, according to Burge. He says most investors are putting up an average of €1,500, making Spark a unique platform. Some are professionals like lawyers and accountants who want to invest in an easier way.
“They’re rich on capital, but poor on time,” says Burge.
However, it’s also an opportunity for new investors: creating an easy introduction to investing in startups. Spark also creates an an easier way for an entrepreneur’s network for friends and family to back their vision without a lot of hurdles.
“Before crowdfunding came along, in order to actually invest in a startup was difficult,” says Burge. “You had to engage a solicitor, and you had to engage a financial advisor. The cost was prohibitively high if you’re only going to invest a grand into it.”
Spark takes on a lot of those third-party costs. They create the terms sheet or document the transfer of shares. That removes the hurdle for a lot of investors.
For the service, the startups raising capital pay Spark a 6% commission for the service.
While the platform seems perfect for early investment needs, Burge says the platform could easily handle larger campaigns too.
Our platform is able to cope with someone who’s looking for a €30,000 product to a million Euros, or even north of a millionaires as well,” says Burge.
Of course, with any investment concept, there are disadvantages. Often, venture capital and angel firms provide guidance and support, in addition to the capital. That doesn’t really happen in a platform like this.
Another challenge is making sure the people investing on Spark understand they very well may lose everything if the company falters.
To help fix that, all users signing up on Spark must fill out an exhaustive questionnaire. Any potential investor needs to click that he or she understands most startups fail, investors in failed startups will likely never get their investment back, and more. It’s all a way to educate investors, while also protecting Spark’s future.
Burge says he has big plans for Spark going forward. They plan to host several more fundraising campaigns this year. Then next year, he plans to expand into other European markets.
“The next six months look very rosy,” says Burge.
We aren’t there yet, but it is always great to see a potential “happily ever after” for an Irish startup helping other startups succeed.