20 VC 023 The Recipe for a successful Crowdfunding campaign with Tom Britton

In episode 23 of the 20 minutes VC, host Harry Stebbings interviews Tom Britton, co-founder and CTO of Syndicate Room, an equity crowdfunding platform that has raised £20 million for 30 companies. Britton shares his journey from quasi-professional footballer to tech entrepreneur, emphasizing the importance of lead investors in Syndicate Room's model, which provides a layer of security in an inherently risky investment landscape. The platform's selective process only accepts 1 in 50 pitches, focusing on mature, IP-heavy companies. Britton envisions Syndicate Room expanding beyond early-stage investments to Series A and B, pre-IPO rounds, and even IPOs through crowdfunding. He also sees potential for more institutional investors joining the platform. The episode concludes with Britton highlighting three exciting companies funded through Syndicate Room: Ego Airplanes, InStyle, and a Hollywood movie directed by Simon West.

• Harry Stebbings hosts the 23rd episode of the 20 minutes VC.
• Guest Tom Britton, co-founder and CTO of Syndicate Room, is introduced.
• Syndicate Room is an equity crowdfunding platform allowing co-investment with professional investors.
• The platform has raised 20 million pounds for 30 companies.

Welcome to episode 23 of the 20 minutes VC with Harry Stebbings on today's show. I'm so excited to have Tom Britton on the show. Tom is cofounder and cto at Syndicate Room, an equity crowdfunding platform that allows its members to coinvest in exciting companies alongside professional investors. To date, syndicate Room have raised an incredible 20 million pounds for 30 companies.

The quote introduces the episode and its guest, Tom Britton, highlighting his role at Syndicate Room and the company's achievements.

• Listeners are offered a chance to win books and resources mentioned in the next five episodes.
• To enter, listeners must leave a review on iTunes and email Harry with the username used for the review.

But before we dive into the interview, would you like the chance to win all the books and resources mentioned in the next five episodes of the show? If so, all you have to do is leave a review on iTunes, then email Harry at the twentyminutevc.com with the name that you left a review under on iTunes.

The quote details a promotional event encouraging listener engagement and reviews for the podcast.

• Tom grew up in the States but moved to the UK to pursue professional football.
• Worked part-time at thetrainline.com while playing football.
• Moved into IT and software development, focusing on mobile application development.
• Decided to pursue an MBA at Cambridge, where he met Syndicate Room co-founder Gonzalo.
• Was introduced to the concept of equity crowdfunding, which led to his involvement with Syndicate Room.

Yeah, well, it's kind of a funny story. I grew up in the States, but my dad's British, so I was always a football fan growing up. And when I finished my undergraduate degree, I decided to move to the UK and try playing professional football... I was playing kind of in the Scottish second and third division... So I had this part-time job being a project manager for the company called thetrainline.com... And when I decided to retire at the rifled age of 25, I got offered kind of a promotion at the train line to look at their product development... I was doing these apps and I kind of realized that I was making a lot of money for a company and thought, why don't I try and do this for myself?

The quote explains Tom Britton's journey from the United States to the UK, his football career, and his transition into the technology industry, leading to his involvement with Syndicate Room.

• Syndicate Room operates on an investor-led equity crowdfunding model.
• A lead investor must be involved and commit to investing before opening opportunities to a wider network.
• The presence of a lead investor is believed to provide more security for investments.

We operate what we call an investor-led equity crowdfunding model. And what that means is that before any opportunity comes to us and is open to a wider network of investors, there has to be an established lead investor involved who's kicked the tires of the business, done their due diligence, and decided to commit to invest in the company.

The quote describes Syndicate Room's unique business model, emphasizing the requirement of a lead investor's involvement for added investment security.

• Equity crowdfunding is considered a risky asset class.
• The involvement of experienced lead investors is expected to yield better returns.
• The industry's youth means there's not enough data to prove higher returns yet, but Syndicate Room anticipates positive outcomes in the future.

I'd like to think so, yes. Let's be honest, it's quite a risky asset class for people to hold... But you'd like to think, and if you go back to that nest report, the lead investors and the business angels who have experience in what they're doing in this type of investment are more likely to have good returns.

The quote acknowledges the risks associated with equity crowdfunding but suggests that the model involving lead investors could lead to more favorable outcomes.

• Approximately half of the 19 million pounds raised by Syndicate Room was invested by people in their network, not just the lead or anchor angels.

And to date, you at Syndicate Room have raised an incredible 19 million, leading me to ask how much of that 19 million was invested by people on your network rather than the lead angels or anchor angels you just mentioned?

The quote inquires about the proportion of investments made by Syndicate Room's network compared to lead or anchor angels, highlighting the collaborative nature of the platform's investment strategy.

• Syndicate Room requires a minimum of 25% of a deal to be funded by lead investors.
• Deals range in the amount of funding available, with some having only 10% available for Syndicate Room investors.

"So our minimum is 25% of the deal must be funded by the lead investors."

This quote establishes the minimum funding requirement from lead investors for Syndicate Room to consider a deal, ensuring a level of commitment and validation.

• The average raise for companies through Syndicate Room is over 600,000 pounds.
• The number of companies funded by Syndicate Room recently reached 30.

"And the total average raise is over 600,000 pounds now."

This quote provides the average amount of capital raised by companies through Syndicate Room, indicating the scale of investment they facilitate.

• Syndicate Room uses targeted marketing tactics focused on the companies and industries they operate in.
• They prioritize company exposure over their own and leverage industry-specific journals and publications for marketing.

"We aim to put out press releases about the companies that are raising finance, but we're very focused on the company more than ourselves."

This quote highlights Syndicate Room's marketing strategy, which emphasizes promoting the companies seeking finance rather than the platform itself.

• Crowdfunding is viewed by Syndicate Room as complementary to traditional VC, filling an equity gap.
• VCs are entering funding rounds at higher amounts than before, leaving a void for crowdfunding to fill.

"What we're seeing is that VCs aren't coming in into a round until it reaches a certain size, and that size is getting larger and larger."

This quote explains the shift in VC behavior, with VCs now entering at later stages and higher amounts, which allows crowdfunding to support earlier-stage funding.

• Syndicate Room does not significantly detract from seed stage VC firms due to the vast number of new businesses versus the relatively few funded by crowdfunding.
• There are ample opportunities for both crowdfunding platforms and traditional funds.

"So we're still very small in our reach of companies that we can support or I'd like to think that there's plenty of good opportunities out there for both our models and for traditional funds to be able to invest and support the ecosystem."

This quote acknowledges that while some companies may choose crowdfunding over seed stage VCs, the overall impact is minimal due to the large number of new businesses created annually.

• The biggest challenge facing crowdfunding is raising awareness of the industry and the associated risks.
• It's essential for investors to understand the risks and conduct due diligence before investing.

"I personally feel that the biggest problem facing crowdfunding is awareness. And it's awareness of the industry and the fact that people can invest in these young companies, but it's also awareness of that risk."

This quote identifies the dual challenge in crowdfunding of not only promoting the industry but also ensuring that investors are aware of and understand the risks involved.

• Syndicate Room has a high success rate for funding rounds, with about 80% of filtered companies succeeding.
• They attribute this success to understanding what their audience is looking for and the capacity to fund.

"Well, to be honest, on Syndicate Room, we filter out a lot of companies and actually we have a pretty good stat for success. It's about 80%, but we do a good job of understanding kind of what our audience are looking for and the capacity of our audience to fund around."

This quote explains that Syndicate Room's success in funding rounds is due to a selective process that aligns investor interests with the companies presented.

• Many companies seeking to be listed on Syndicate Room are initially ruled out due to the absence of a lead investor.
• Only about 1 in 50 companies, or 2%, that apply are accepted onto the platform.

"I'm going to get the numbers wrong and apologies as you know it, but if you look at it this way, most of the companies that are out there come to us and they don't have a lead investor yet. So by rule they're ruled out."

This quote reveals Syndicate Room's strict criteria for platform listing, which includes having a lead investor, thereby ensuring a high level of curation and potential for success.

• Syndicate Room has specific investment requirements, such as the need for lead investors and offering preemption, drag along, and tag along rights.
• All investors must invest on the same terms.
• Failure to adhere to these requirements results in potential investors being ruled out.

"Not taking into account all of the other things that we tell them like, look, you have to have lead investors, you have to offer preemption, drag along, tag along rights. All of our investors have to invest on the same terms."

The quote explains that Syndicate Room has set guidelines for investments which include the necessity of having lead investors and certain rights that must be offered. This ensures a standardized and fair investment process for all parties involved.

• Syndicate Room is not primarily in the business of connecting previous lead investors with future investors but does work with angel networks.
• The platform helps the ecosystem by sharing standout opportunities with potential lead groups.
• There is no guarantee that these groups will choose to invest.

"It's not the business that we're in, but it's actually working with all of the angel networks who tend to be the lead investors and knowing what it is that they're interested in and what they tend to invest in."

Tom Britton emphasizes that while Syndicate Room's main business is not to connect investors across rounds, they do facilitate introductions by understanding the interests of angel networks, which often are lead investors.

• Syndicate Room has a minimum investment level, leading to fewer investors on a startup's cap table.
• Investors on the platform are serious and capable of following on in later rounds with significant funds.
• The platform is attractive to those who prefer a streamlined investor base with the potential for continued investment support.

"Well, with our model, we have minimum investment level of 1000 pounds. Right. So when someone comes to us, they know that their cap table is not going to have hundreds of people."

Tom Britton highlights a key benefit of raising capital through Syndicate Room—the assurance for startups that their cap table will not be overwhelmed with a large number of investors due to the minimum investment requirement.

• Business angels and academics in the Syndicate Room network offer advice to companies when they feel it is valuable.
• While not a requirement, investors who contribute more significant amounts of money are usually inclined to provide guidance to the companies they invest in.
• The investor community includes experts in various fields, particularly those based in Cambridge, which aligns with the region's strong academic and research presence.

"They do when they think that their advice is valuable. So we have a lot of kind of business angels and ex kind of academics as a part of our network."

This quote indicates that investors within the Syndicate Room network are willing to offer advice to portfolio companies, leveraging their expertise when they believe it can make a meaningful impact.

• Equity crowdfunding is a growing market with room for multiple players.
• Crowdcube is currently the largest platform in the UK, but Syndicate Room sees the potential for growth within the sector.
• The total market for angel investment and early-stage funds in the UK is significant, suggesting that competition can be healthy.

"Crowdcube were the first, they're the largest. Now, they've been kind of blazing the trail, but there's enough market share out there for all of us, for at least the big three."

Tom Britton acknowledges Crowdcube's leading position in the market but is optimistic about Syndicate Room's growth prospects given the substantial size of the investment market.

• Syndicate Room aims to disrupt not just early-stage equity investments but also explore other investment stages and asset classes.
• The platform is interested in expanding into Series A, Series B, pre-IPO rounds, and even conducting IPOs through crowdfunding.
• The technology developed for the platform could be adapted for a broader range of investment opportunities.

"I'd also like to see us moving away from just kind of that early stage, but moving into things. Series A, series B, pre ipo rounds, doing ipos through crowdfunding and giving access to retail investors."

Tom Britton expresses his aspiration for Syndicate Room to expand its services beyond early-stage investments to later-stage funding rounds and public offerings, making these opportunities accessible to a wider investor base.

• There is a clear expectation for more institutional investors to become involved with Syndicate Room.
• The business model of Syndicate Room is built to accommodate and attract institutional investment alongside individual investors.

"Absolutely. I mean, our whole model is based on syndica"

Although the quote is incomplete, it suggests that Syndicate Room's model is conducive to institutional investment, which is a strategic direction for the platform.

• Co-investing with business angels and funds has its advantages.
• A lead investor provides credibility, while a crowd of investors can boost market presence.
• Potential consumers become investors, creating a deeper connection with the company.

"And we've been working with business angels and funds already on co-investing. And I definitely think that there's benefit to having that lead investor on board, but then also a crowd or a wider audience of investors on board beyond just kind of market presence and getting potential consumers to invest in you."

This quote highlights the strategy of combining lead investors with a broader investor base to gain both credibility and market presence. It suggests that engaging consumers as investors can be beneficial for a company's growth.

• The initial six to twelve months are slow for entrepreneurs, contradicting the expectation of rapid success.
• The industry's youthfulness means growth may not meet ambitious visions immediately.
• Adjusting expectations and celebrating achieved milestones, like surpassing KPIs, is crucial.
• Ambition drives the desire to be the biggest despite the company's relatively short existence.

"I guess for any entrepreneur, it's that first kind of six to twelve months where things are moving slowly... I don't want to say it's slow growth because we have grown quickly, but the expectations and these visions that you get in your head... You kind of have to bring that all into perspective and be realistic about it."

Tom Britton discusses the reality check entrepreneurs must face when their high expectations for rapid growth are not immediately met. He emphasizes the need for realism and perspective in the early stages of a business.

• Ego Airplanes: Appeals due to personal interest in aviation and the potential democratization of piloting through affordable single-seat aircraft.
• InStyle: Innovates by turning B&B websites into e-commerce platforms, saving money for B&B owners.
• A Hollywood movie directed by Simon West: Chosen for its innovative approach to film financing through equity crowdfunding, allowing investors to profit from the movie's success.

"The first one that comes to mind is ego airplanes... And the third one is, do I have to pick a third? They're all great... It was a Hollywood movie. Simon west is the director, and I'm picking this one because I'm a huge con air fan."

Tom Britton expresses enthusiasm for Ego Airplanes due to a personal connection and for a Hollywood movie project because of its innovative financing model and his admiration for the director. He also acknowledges the difficulty in choosing favorites among the companies Syndicate Room has founded.

• Gratitude expressed by Harry Stebbings for Tom Britton's participation.
• Invitation for listeners to engage with the podcast by suggesting future guests and questions.
• Reminder to visit the podcast's website for additional resources and links related to the episode.

"Well, Tom, thank you so much for giving up your time to be on the show. It's been a great pleasure chatting to you and really look forward to having you on the show again."

Harry Stebbings thanks Tom Britton for his insights and contributions to the podcast, indicating the value of the discussion and the potential for future collaboration.