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Ingenious Britain talks to Simon Dixon on the new kid on the crowdfunding block, BankToTheFuture.com
Category: Alternative Finance | 08 March, 2013 11:10
The small business lending landscape is altering beyond compare: banks aren’t lending to small businesses, so alternatives have had to be found in order to nurture the ‘New Normal’ of the British economy. One of these alternatives is crowdfunding, a type of funding encouraging ‘armchair Dragons’ to invest their own money into smaller projects, thus empowering the people as opposed to the big, bad, banks.
So we spoke to Simon Dixon, ex-investment banker and founder of BankToTheFuture.com, an innovative new crowdfunding platform, which seeks to empower and support the entrepreneur, on his background, the importance of crowdfunding, and his tips for small businesses looking for investment.
So Simon, tell us a bit about your background. How did you get into banking?
My career started when I left university. I wanted to work in investment banking really badly, but I got rejected from all of them – ninety-four in total. I’ve actually still got the rejection letters as one of my prized possessions! I was told by a careers advisor I wasn’t educated enough so I went and did a masters degree, and was subsequently rejected by another one-hundred and twenty-five of them! In the end I decided to knock on some doors - and after a month’s stint as a tea boy at an brokerageI was a stockbroker. Six months after that, I got a job in an investment bank as a trader in London; and then the next thing I knew, I was a corporate financier!
The traditional route didn’t work for me, so I went more along an ‘entrepreneurial’ route.
Rejection isn’t the worst thing in the world then?
Well, if you’re starting up in business, you’d better get used to it!
After that success, what inspired you to leave banking then?
When I worked as a trader, there was something unfulfilling about the speculative side of investment banking; I wanted to get into the corporate side because I wanted to get a real feel for the businesses behind the numbers. After about two years in the corporate world, I became fascinated by the CEOs who were taking their businesses public, and promptly decided I was on the wrong side of the desk. I wanted to create a company which one day could go public too, so I quit.
Interestingly, I then set up a company to help students and graduates who weren’t from the traditional places (i.e. the red-brick universities) to set themselves up in investment banking! We ended up creating a qualifications company which I did for about six years – on the side, we were communicating with students and trying to make them more ‘social’ bankers and encouraging sustainable banking. When the banking crisis hit, I went from being ridiculed by some of the top universities for my thoughts on the future of banking to actually being invited onto TV and write books!
So the crisis was actually a bit of a catalyst for our business; and as the situation got worse for businesses trying to seek finance, we figured there was a better way of doing things. So we put a team together and launched BankToTheFuture.com.
So, what are the general principles behind BankToTheFuture.com?
It’s all about taking the processes that we used to use to make billions for larger companies, and stripping down all of the upfront restrictive costs – making it accessible for small businesses to raise smaller sums of money in a number of different ways. For us, it’s all about the movement from institutional finance to people-powered finance. So, rather than borrowing money from a bank, you borrow money from a crowd; rather than pitching angel investors and venture capitalists, you pitch the crowd. If you’re at a very early stage, we have some alternative products you can use to raise finance from the crowd whilst you get yourself more investment-ready and credit-worthy.
Today is the most interesting time in history – because not only are we moving towards people-provided finance, it’s also completely democratised the cost to investing. Ordinary people can become the banks and angel investors.
How has BankToTheFuture.com gone so far, since you started in February 2011?
We spent a long time on the technology and the regulations, and launched into beta in September 2011. In beta we were working with a small group of businesses, and eventually raised around £230,000 for six businesses. Now we’re moving out of beta and actively working with businesses. We like to empower entrepreneurs; rather than straight-out rejecting entrepreneurs if they’re not quite ready for finance, we like to work with them to help them get their business ready so they can raise finance.
We’re now working on our next round of fifteen businesses on a four-week accelerator programme to really make sure they’ve covered all angles before going out to pitch to the crowd; and we’ll be launching our investor event soon, so that as well as pitching on the platform, they can do so offline as well.
What are the processes involved with it?
You’d go to our homepage and make a quick application to pitch – just answering a few questions about your business. We’d then follow that up with a phone call in which we’ll recommend the best way for you to raise money from the crowd. If you’re very early stage, we might ask you not to pitch to the ‘investment’ crowd just yet, but would offer you alternatives. If you’ve got a good team and the product’s taking shape, then you can pitch to the crowd of investors and offer shares in your company. If you’re a little bit further along still, you may be able to borrow from the crowd if you’ve got good cash-flow and a good credit rating.
Whichever stage you’re at you’ll either get an invite to pitch straight on the platform, or we may invite you to one of our events where we’ll guide you in the best ways without spending loads of money on professional fees, getting tax-efficient for investors, just everything to make yourself look attractive without having to pay big legal bills or the like. If you’re looking for more support, we offer our four-week accelerator: we’ll really dig deep into your business plan and financial model, record a video, and get you in an optimal position to get you out there and ready to pitch!
In what way is BankToTheFuture.com unique as a concept?
The big vision for BF is that we eventually want to be an entrepreneur’s bank. We’re not a bank at the moment – I want to make that perfectly clear – but we think that things like credit ratings are inferior measures of entrepreneurs on their own; we want to give people the ability to build a ‘social capital score’ rather than a credit score. It builds on a credit score, but it also pools data from the likes of LinkedIn and Facebook; good reputation online and offline, a good reputation in the entrepreneurial community, will benefit your chance to raise finance.
At the moment, we’re the only platform where you can go through the complete funding cycle through to the point where you could look to funding from a venture capitalist, where you can raise equity finance, look to the crowd, and maybe if you’re a young business, look to smaller crowdfunding options. We’re also the only platform, as far as I’m aware, to offer support and training during the whole process. We put a lot of time and effort into that – because as I said, our last business was a training company!
We see it that we don’t want you to come to our platform just to raise finance, but to manage the whole of the financial future of your business!
So, it’s all about sustainability then?
I believe that entrepreneurs are the unsung heroes of the world. They take more risks than anyone; the government is reliant upon them to create jobs right now; and really, we’re one of the only sustainable sectors and we need to allocate as much finance as we can in a sustainable way. Not everybody deserves finance – it can’t be too easy – you’ve still got to put the effort in to create a solid business. What really upsets me though is the entrepreneurs that are working really hard, that have really good business plans, who just can’t access those funds. That’s what gets our team up in the morning – to support those people who take massive risks to build something, both financial and social, killing their personal finance and personal relationships trying to make a business happen.
What advice would you give to businesses to seek investment, crowdfunding or otherwise?
First, make sure you’re pitching the right source of finance: if you’re knocking on the bank’s door and you haven’t got a cash-flow or decent credit rating, then it’s a waste of time; if you’re trying to crowdfund and you haven’t got good connections online and offline then it’s going to be hard for you to raise the finance; if you’re pitching a lifestyle business to venture capitalists, and it’s not going to turn over £100m in the future, then you’re wasting your time.
Secondly, and this is probably the opposite to what I should be saying, is try not to raise finance. I see people trying to get funding simply because they don’t get on the phone and make any sales. To get a business started, you only need two things: someone who can build a product, and someone to sell a product. If you can sell a product, please do before you go out and raise finance. I appreciate that a lot of businesses are capital-intensive, but ask yourself: do I really need to raise this finance, and can I supplement that through sales? Because ultimately, that’s the best kind of finance.
Thirdly – I see lots of entrepreneurs who are very creative and who have lots of ideas; the value of an idea is about £12.99 on its own: it’s called a book. The value of an execution plan and a team is a lot more, so what I’d encourage you to do is go as far as you can beyond the ‘idea’ so you can command a much greater valuation when it comes to raising finance. That means having a good team around you, bootstrapping as far as you can, and building some great products.
And finally, more generally – what should the government do to help out small businesses in the next budget?
Actually, HMRC are doing some really great things already. There are some really great tax structures in place at the moment like the Seed Enterprise Investment Scheme (SEIS) which is going to attract loads of money to small business – I think it’s a brilliant scheme. I think the government are doing good things at the moment in order to help businesses grow and helping businesses start: we’ve got Start-up Loans, and Vince Cable has been supporting the non-bank lending sector.
I think that if you take a snapshot of a bank at the moment, around 92% goes towards mortgages – which are pushing up property prices beyond affordability, credit cards – which is taking people who have jobs deeper and deeper into debt (normally), and investment banking speculation. So 92% of the balance sheet is doing nothing to help the British economy. Essentially the most productive sector is the small and medium sized business sector, and only 8% of the capital makes its way there. So, anything that could re-distribute that money that would have gone into property, credit cards or speculation and move it towards SMEs that can employ one, two, or three more people is good stuff. I really like a lot of stuff the government’s doing at the moment, but there could be more.
Bio: Simon Dixon is CEO & co-founder of BankToTheFuture.com, author of ‘Bank To The Future: Protect Your Future Before Governments Go Bust’ and an active banking reformer. Simon’s last corporate job was in investment banking before setting up a training company for investment bankers. After working with venture capitalists to help them take their companies public, securing angel funding for his business from billionaire Peter Hargreaves and crowdfunding his last business, Simon co-founded CrowdInvesting platform BankToTheFuture.com to bring the processes used by large companies to raise billions to small businesses seeking smaller sums of money without all the restrictive up-front costs.
Simon regularly provided commentary on all things banking and finance for the BBC, Channel 4, Bloomberg, Reuters and major publications like the FT, Guardian, Times, Telegraph, City AM, Investors Chronicle and other major press..