Everyone knows how hard it is to raise funding right now. But the European VC market has been even more abysmal than the US one of late, with first round fundings thin on the ground and down-rounds aplenty. So one startup has decided to jump ship from the VC merry-go-round and seek a ‘third way’ for itself.
Trampoline Systems , specialists in “social analytics” for companies, launched in the UK and the US last year but a search for a new £5m round after an initial £3m round in 2007 from Tudor Investments (the venture arm of US hedge fund Tudor Group) drew a blank after Tudor was hit massively in the credit crunch.
They’ve instead turned to “crowdfunding” to pull in lots of £10,000 or more from high net worth individuals around the world. They worked with lawyers for a month on how to structure the deal in compliance with UK regulatory rules, and aimed for £1m.
The efforts are bearing fruit. Two weeks after launching the initiative they’ve now closed £330,000.
Of course, this puts the round in the realms of a down-round, but somehow CEO Charles Armstrong is confident it will work out. He says too many of his assumptions as an entrepreneur have been dictated by the norms of the VC industry: “There is something unhealthy about the dominance VCs have had.” He also says raising funds from a myriad of different investors won’t jinx the deal for a VC if that time ever comes again.
We’ll, admittedly you would say that if you couldn’t raise a new round from a VC right now. However, as he says “Nobody’s ever done equity crowd-funding at this scale.” In other words, we’re in uncharted territory here.
There is also no time scale on when they will reach the £1m, though they’ve structured the process with an initial completion at £500,000 and are confident of raising the full £1 million.
Is this a PR stunt to get the attraction of real VCs? Armstrong says not and “the Proof is in the pudding.” He also says VCs he’s spoken to are warming to idea as a way of keeping a company going long enough for VC to come back to the table later on. I guess £330,000 is nothing to sniff at in the current climate.