Who protects the crowdfunding crowd?

Key Person

Crowdfunding is rampant!

Crowdfunding seem to be the new buzzword and while I can see it’s brilliant for getting the funds in, are the crowdfunders investing in the companies or the people running the companies? Usually the latter. What would happen to the crowdfunders investments if the key people driving the businesses weren’t there anymore?

To make this real let’s look a well know brand/entrepreneur that used alternative funding to get his business moving, (and I hope he doesn’t mind me picking on him!!).

Levi Roots went to Dragons Den ( a kind of crowdfunding with a crowd of between 1 and 5) in 2007 and gained £50,000 investment from the Dragons. Now had they bought into a sauce or had they bought into the man and the brand? If you look at the “audition” it was clearly Levi they bought first and his product second. He sealed the deal and had the personality to give the investors confidence that his personality would sell the product. If you don’t believe me picture yourself, or me, in that room pitching reggae reggae sauce to the dragons…. ok.

What if…

Imagine if a few days/weeks/months after this deal was done Levi suffered a serious illness and couldn’t work on the sauces or the promotion of them. Or even a not so serious illness that just stopped him doing his job. Would the product or business be the success it is today or would it have stalled and the Dragons lost all or part of their investment? Lost confidence and enacted a “small print” clause that allowed them to pull themselves and their funds out.

Now had the company taken out a Key Person policy on Levi and/or an Executive Income Replacement Plan then they could have received a lump sum or an income to mitigate the financial impact on the business. There’s only one Levi, he’s irreplaceable. But the funds could have been used to bring in, on short notice, an experienced head to steer the ship through the choppy waters and help run and promote the business while Levi recovered. It could be used to help Levi recover more quickly, private hospitals, operations, care and rehabilitation. Worst case scenario there would have been funds to at least repay the investors and make sure Levi’s family were looked after.

And so…

When you’re looking at crowdfunding most likely you will watch a video, a story that tells you about the idea, the creator of the idea and why you should invest in both. Usually your crowdfunding decision is based on the emotion of the story and the attraction of the personality. We’d like to see a new element to crowdfunding …crowd protection. If the business fails due to accident, illness, critical illness or death you get your investment back, no questions asked.

I wonder how many businesses have thought about this in their business plan?

More info…

Here’s a report on crowdfunding that gives an up to date insight on current thoughts and trends http://thecrowdfundingcentre.com/?page=report

Martin Byrne

Head Honcho at Business Protect

Book a free consultation with Martin

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