Crowd funding supporting projects or businesses is catching on in a big way. Not only does the model provide finance but it provides access to a larger number of people (crowd) who can test and externally validate an idea. Crowd funding takes a number of different forms including donation, reward, lending and equity. It is a way of financing projects, businesses and loans through small contributions from a large number of sources, rather than large amounts from a few.

In this blog I’m going to focus more on the rapidly growing equity type crowd funding, where individuals receive small stakes in a privately owned young business in return for investment as this is the area of crowd funding that has caused the most controversy of all!

What is equity crowd funding? In equity crowd funding businesses sell shares in their business to the crowd in return for cash. The investors become shareholders in the company with all the legal rights that this entails, for example, the right to dividends and the right to sell their shares in the future. One of the main reasons this has caused the most controversy is the principles of protecting the small investor from making risky investments where they can lose their money. However, this is the specific purpose of equity crowd funding as it allows and enables investors, who could be friends, family and strangers, to make as many small investments into companies as they wish!

Why would a business choose to crowd fund to other traditional forms of finance? Grants – Entrepreneurs often struggle with accessing public grant type funding. They are notoriously difficult to obtain and require a large amount of time and effort which may result in it being unsuccessful. Grant awards will set out a requirement for future reporting and you will be expected to observe the reporting requirements for some years after. Bank Lending – some banks may be unwilling to lend the sums of money many businesses need to grow, especially when those businesses are at an early stage of development due to the high risks involved. It has been suggested that future models with more than one bank of a quasi-crowd fund may be on the horizon!  Venture Capitalists often invest millions of pounds in a company. The money is normally put up by pension funds, insurance companies, banks and investment funds. They look for very good management, operating in a market that is either very large or is growing fast. The funds want to invest in companies that could reach significant profits within three to four years. Business Angels – before the arrival of crowd funding to find business angels you had to reach them through your own contacts or to approach them via a business angel network. Sometimes these networks would be highly secretive and charge fees to the investor and the entrepreneur. The levels of advice they provided for the fee varied widely, from offering pretty much none at all to the entrepreneur getting investor ready. Angel investing differs from crowd funding in that one or more investors may get involved in your business on a day to day basis. In the crowd, the involvement of funders is likely to be much more remote

Benefits of crowd funding The great promise of crowd funding is that it offers some advantages that other forms of financing do not. This means that more worthwhile businesses get funded and the people investing have more choices about how and who to do it with. In a world in which financial innovation has come to be associated with greed and dishonesty, it’s a welcome change!

• Crowd funding allows you the opportunity to access funding from investors who have an inherent interest in making your project or business a success.
• Crowd funding engages consumers in shaping and influencing what they want produced.  Early engagement also supports a feeling of added ownership where backers in partnership with the entrepreneur have a stake in trying to make the campaign successful.
• While the crowd can be an excellent source of funds, in many cases their commitment or interest in what you are doing will motivate them to give you other forms of assistance. This can be in form of mentoring or feedback, marketing the project to others or assisting with specific task.
• By giving investors more of a role in carrying due diligence, and automating more of the funding process, crowd funding reduces the transaction costs of getting capital to entrepreneurs, making finance cheaper.
• Entrepreneurs come up with less initial capital from themselves, friends, family, and angel investor

Risks of Crowd funding Crowd funding has the power to change funding in a whole range of ways but we shouldn’t assume it will transform the world overnight. If crowd funding is to achieve its potential, there are a few key challenges to consider:

• Risk and regulation; as crowd funding grows in both scale and scope, it makes the requirement for some form of oversight more important. This is particularly true of equity crowd funding where unsophisticated investors will be backing risky ventures in many cases driven primarily by the expectation of making a financial return. But at the same time, the Government should not overreact and introduce the kind of heavy handed regulation likely to stifle small new platforms.
• Setting valuations – Entrepreneurs need to ensure they value their business correctly in order to decide how much equity to offer for the amount of equity they are seeking. This is important to ensure the entrepreneur gets a fair evaluation for their business while ensuring shares are not too expensive.
• How web savy are you? If you know nothing about the web and especially social media, you will find crowd funding very challenging.
• Launching your crowd funding campaign to early: you must get to know your market before launching a campaign. Specifically, you must understand who your target market is, what motivates this market to engage with their product/brand and how to best communicate and engage with them.
• Underestimating the work and time required managing a fundraising campaign;the work involves generating momentum by tweaking and launching new perks, responding to questions and suggestions from supporters, keeping social media activities running and trying to win mainstream press coverage. Until your campaign target is within reach, the pressure is on constantly to do more of everything.

The more research I do around crowd funding the more inspired I am by the potential  that crowd funding offers both to people who need money and to those who have it and want to put it to good use. The big challenges that face crowd funding, such as regulation, are being addressed, if not yet completely resolved already.

As Commercial Funding Manager at Staffordshire University this is a model that we are currently investigating in support of Research and Development, technology transfer and business start-ups. I don’t believe that crowd funding will ever replace banks, grants or other traditional risk investment but I hope to use it as a means of raising money that we can leverage with other public and private funds to help de-risk the investment opportunity.

It would be great to hear from peoples experiences of Crowd Funding.

To find out how businesses can collaborate with Staffordshire University please click here http://www.staffs.ac.uk/for_business/

To find out more about me and my contact details please click here http://www.staffs.ac.uk/staff/profiles/nl6.jsp

Please find attached a link to a recent article about the current bid by Pfizer to take over the UK based pharmaceutical AstraZeneca; a company with Research based links with several UK Universities. Politicians of all political hue in the spectrum are currently embarking on a very keen debate as to whether there is a ‘national interest’ in science, research and manufacturing. The writer considers that in terms of the work engaged in by Universities, there is such a national interest worth preserving.

Should a takeover be about shareholder value (the value of any sale to the shareholders), and nothing but shareholder value? The current offer stands at £50 per share or thereabouts (currently totalling £63bn). A same or similar debate and process would receive a different answer in Europe – as the current takeover bid for Alstom by General Electric (and latterly Siemens) shows – the French Government supporting a bid by the subsequent offeror. UK politicians are, perhaps reluctantly, being drawn into taking sides about a process that is ordinarily resolved by the markets and the Takeover Code, and generally free of direct political involvement of Government. Perhaps the takeover process of AstraZeneca will change this and make things more ‘European’ in approach?

The current debate is evidently not solely confined to ‘shareholder value’ only, and the attached Newspaper article is as good a place as any, to start an inquiry about the issues, including the request by politicians of both sides for a commitment by any purchaser, hostile or otherwise (in ‘takeover’terms), to commit to continued investment in research and development involving Universities.

http://www.theguardian.com/business/2014/apr/28/pfizer-astrazeneca-takeover-bad-news-uk-research

Please find attached the link to a short lecture given by Lord Neuberger on Intellectual property themes related to English and European law.

Although the article would require a read of the cases referred to, some of the interesting comments include:

1. Paragraphs 4 to 10 is a very neat summary of basic elements of the UK Constitution and its relationship to Europe

2. Paragraphs 11 to 13 a toe in the water of the law of price-fixing and anti-competitive behaviour

3. Paragraphs 14 to 28 (Patents and Europe) sets out the policy aims and requirement of the UK Courts to absorb, follow and be enriched by the judicial reasoning of both the Enlarged Board of Appeal and the decisions of the Court of Justice of the European Union (the CJEU). Grounds for optimism in that regard are set out in paragraph 22 and reference to the case of Schutz v Werit [2013] 2 All ER 177, (the subject of a previous blog) in which the UK Supreme Court was greatly assisted by relatively parallel litigation involving the same litigating parties in the German Appeal Court (the Bundesgerichtshof) – Lord Neuberger cleverly concluding that this is a process of judicial decision-making, ‘a common law approach to life’ rather than following European civilian approaches with ‘masses of provisions’. An interesting way of looking at the jurisprudence.

4. Paragraphs 29 to 40: Trade Marks and Europe: I have never understood the judicial comment about the irrelevance of the Trade Marks Act 1994 as opposed to going straight to the Directive (Directive 89/104, now Regulation 2009/207) – but in light of the unequivocal explanation in paragraph 29 will now take the tip and do likewise. This section includes some useful explanation of the function of trade marks and the problems of interpreting decisions returning on reference from the CJEU, where it was unclear following reference (in cases such as L’Oreal v Bellure [2010] Bus LR 303, as to precisely ‘who has won?’ (see paragraphs 30 and 31).

5. Paragraphs 38 and 39: an entertaining and ‘scientific’ if not too serious discussion of the merits and demerits of single judgments from the CJEU (which is compulsory) and a common law system where multiple judgments (and the possibility of dissenting judgment) is possible.

The attached article seems to be as much intended to provoke discussion (in my view) about three huge subjects in intellectual property, and merits a close read, including some of the cases such as Norris v United States of America [2008] 1 AC 920 – time permitting.

the Link to the lecture:

Click to access speech-140401.pdf

Further to a recent enquiry from a University colleague about the forthcoming appeal in Barkas v North Yorkshire County Council, (registration of a town or village green under the Commons Act 2006) the Appeal (in the Supreme Court today) contains (in the view of the writer) a short point:

What is the legal status of use made by the public (or local inhabitants) of a recreation ground provided pursuant to an express statutory power (a raft of public statutes dating back to the Public Health Act 1875 and earlier – the last station on the branch line being the Commons Act 2006), and whether the use could be use ‘as of right’?

Application had been made by either North Yorkshire County Council or Scarborough Council to build houses and other local amenities on the playing field (at Helredale, Whitby). What are the conferred rights on the local inhabitants to ‘indulge in lawful sport and pastimes’? When does a statutory right or licence to use a ‘recreation ground’ arise? Those in the neighbourhood and inhabitants, having enforceable rights to use a recreation or sports ground, the question of when and how that right (by licence, trust or otherwise) arises, is core to this appeal.

This appeal runs today and tomorrow, and should be of great interest to those promoting Sport and Exercise in Education and to the public, and those interested in Public and administrative law.

First Instance decision:

http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Admin/2011/3653.html&query=barkas&method=boolean

Court of Appeal decision:

http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWCA/Civ/2012/1373.html&query=barkas&method=boolean

The live hearing in the Supreme Court today:

http://news.sky.com/info/supreme-court

Further to a recent inquiry as to whether any action could be taken against persons making groundless threats for infringement of a patent, I attach a recent decision of Judge Hacon QC, the case of Brundle v Perry [2014] CC 13 P 00980 (judgment handed down on 6 March 2014), in which a Claimant wholesaler of metal products and fences, brought proceedings against the Defendant, Mr Perry, as a company aggrieved by the threats of proceedings for infringement. The case is a good explanation of the procedure and issues in relation to the making of groundless threats.

It is possible for either party in such proceedings, to file a request at the Intellectual Property Office (the IPO) pursuant to section 74A of the Patents Act 1977, for an opinion, (in this case as to whether the Claimant’s suppliers of fences) had infringed the Defendant’s patent.

The test as to what constitutes threat of proceedings for patent infringement is set out in paragraph 22, 23 and following, of Judge Hacon’s judgment. In this case the threat in the Defendant’s letter was found to be ‘excplicit’and plainly contained a threat by the Defendant within the meaning of section 70 of the Act.

The Judgment is attached below:

http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/IPEC/2014/475.html&query=brundle&method=boolean

Please find attached the Government’s response to the Witty Review on Universities and Growth. The recommendations include making as much information available to potential investors of Research information, encouragement of links with small to medium sized enterprises, funding from European Structural and Investment Funds to Local Enterprise Partnerships, and encouragement of the LEPs to have a ‘university presence’ on the University’s Board. The Universities will be encouraged by Government Ministers to take on ‘co-chairmanship’ of the LEP in suitable situations. The Government’s response to the 10 recommendations are set out at the end of the document.

bis-14-540-government-response-witty-review-british-invention-global-impact (2)