Harriot Pleydell-Bouverie, founder of marshmallow business Mallow & Marsh warned other firms that by opening up their businesses to crowd funding they were risking losing control of the companies they had built.
“The strongest option for securing funding is to find investors, but I don’t want that,” she told FoodManufacture.co.uk. “Crowd funding gives away equity in the business. Crowd funding is fantastic, but in the long run it is negative as it would result in other people having a say in how the business is run.”
Max Chymyshuk, founder of alternative finance firm Fleximize, agreed crowd funding could result in people losing control of their business, but that no route to funding was without its risks.
“The traditional approach to securing funding is between debt and equity finance, which gives you the trade-off between losing control and losing everything,” he told FoodManufacture.co.uk.
‘Battle between risk and greed’
“If you owe debt, you don’t lose control, but you could lose it all if you don’t repay it in time. It is a battle between risk and greed.”
Fresh curry business Vini & Bal was keen to advocate sourcing funding from a single investor.
“The British Asian community traditionally source capital for investment from their families,” the company’s owners Vini and Bal Aujla said in a statement. “As British Asians ourselves, we know many contacts and friends who have done this. However, it can be extremely valuable to secure funds through other means.
“In February we appeared on BBC TV programme Dragons’ Den and secured £50,000 in exchange for 30% equity in our authentic Indian sauce business, Vini & Bal’s. It certainly wasn’t the most traditional path to investment but there have been huge advantages.”
The husband and wife duo became the first British Asian couple to secure investment on the programme, when Piers Linney chose to invest in the business.
Following the investment, the firm secured a listing in Sainsbury and is now available at 300 stores in the fresh meat aisle.
But the couple said crowd funding could be a good option for businesses if traditional avenues, like bank loans, were closed.
“As with our Dragons’ Den experience, crowd funding can bring fresh blood and support to a business. Creating a successful company is all about enlarging its stakeholders, be they fans, consumers or investors.”
Tell you what to do
Nick Moules, marketing and communications manager at crowd funding website RebuildingSociety.com, said: “I can understand people’s negativity to giving away equity. Having built the business up from the ground it can be hard to have someone else come in tell you what to do.”
Moules revealed that RebuildingSociety.com had helped Leeds-based Exquisite Handmade Cakes secure the £50,000 investment it needed for a new portioning machine.
“The company wanted to secure retail contracts and to do that needed a new portioning machine,” he said. “They had hit a brick wall in terms of funding and our lenders saw it made sense and invested.”
He added that food and drink firms were really popular in the equity crowd funding space and could receive support very quickly because they have a broad appeal.
An average crowd funding project would receive interest from over 400 different lenders, Moules claimed.
Healthy eating business Sian’s Plan is currently 60% of the way to securing £100,000 through crowd funding to help it improve its marketing, add value to its recipes, enter new markets and create a mobile site.
Its co-founder Vincent Breslin admitted losing control of his business was a concern when he decided to use equity crowd funding firm Seedrs to boost capital.
“Giving away control of our business was a concern; we did take that risk on board,” he said. “But through Seedrs there is only one shareholder with a voice. We have no problem giving away shares, so we welcome people that have our best interest at heart and can offer advice to the company.”