Last week I had the opportunity to interview Simon Dixon, CEO and founder of BankToTheFuture.com, a new online finance company launching next week. The new platform represents a perfect union of all the alternative finance models that we’ve seen emerging in the past couple of years, i.e. crowdfunding, crowdinvesting, crowdlending.
Simon, thanks for taking the time to speak to us about Bank to the Future, can you tell me a bit more about the origins of the project?
We are essentially a team of ex financiers who left the banking world when we got a little bit fed up with it. I came from investment banking and six years ago I left in order to do two things, one to set up in business and secondly to work with a not-for-profit that was working on reforming the banking system because we were forecasting the crash ahead. That was in 2006 and we formed a training company for investment bankers, we were looking at helping students to become more social bankers and we ended up becoming one of the largest online training companies. We raised finance for that company through angels, through high net worth individuals.
Are you talking about Benedix?
That’s correct. I was also working on the banking reform stuff and I was presenting across the world on that, then in 2007 it happened that they asked me to go on TV and write books on the problem. Up until about two years ago we built this huge following of entrepreneurs and business people. The environment for raising finance became harder & harder & banks stopped lending to businesses. In the UK we have a very small VC market and they only invest in growth. Not everyone knows rich angels, so it’s a little bit challenging and they don’t know the process to get investment ready for angels. We found ourselves in this environment and at the same time we watched the emergence of alternative finance with P2P lending and crowdfunding. About two years ago we decided that with this following with the contacts that I built working with a lot of venture capitalist in my career as an investment banker, I financed all my own businesses and got a lot of good contacts in the angel environment in the UK, we should try and help businesses raise more finance. So we put together a great team of people who had worked in alternative investment, finance and retail banking, investment banking, technology people, social media people, and started working on what we could do in order to sort the problem of access to finance for people that are looking to do something in this world, and the result was BanktotheFuture.com
When are you launching?
We’re launching in one week’s time, we’re going into beta. We’re working with about 10 entrepreneurs and businesses at the moment, helping them get fully investment ready, helping them to put together their video pitches and make sure they’ve got every chance to be successful at raising finance.
What is distinct about BankToTheFuture.com? There are a lot of other crowdfunding platforms out there that allow you to fund a business, what is that makes BankToTheFuture.com different from them?
There are so we’ve attempted to do a few things differently. Firstly, because we all come from a finance background, we’ve all owned businesses, we’ve all raised finance, we’ve all worked in the banking industry, we’ve raised billions for companies, either our own or other companies, we have tried to simulate the exact process that we know works very well to raise billions for large companies, but for small companies. So we understand that at different stages of your business you will need different types of funding. So if you’re very early on and you’ve got an idea then you’re probably not quite investment ready to take on external investors, you probably need to validate that idea first, and the best way we think of doing that is crowdfunding, which is offering rewards to people who want to donate to your project, it helps you validate your product. It helps you understand whether you can pitch, it gives you the foundations of what might be a successful business.
We spend a lot of time helping people get investment ready, we have membership levels where we’ve taken some of the best people that have raised significant sums of money and also understand the crowdfunding alternative space, to create online training to help people with every single aspect to get investment ready. Once businesses actually validate their idea and get investment ready, they’ll be ready to offer shares to the crowd. If you’ve already done a crowdfunding round, then you can probably raise more money by offering shares in what we call crowdinvesting. Later in your life, you might be ready to borrow the money from the crowd, what we call crowdlending. In order to do that you need to have trading history, you need to have good credit record because you have a duty to our lenders to make sure you’ve got a good credit history. We want to walk you through the lifecycle of your business from idea to the point that you’re credit worthy enough to grow the business.
What type of business are you targeting, if any?
The market will tell us where we’re going to fit best, at the moment we want to serve people that want to create new value in the world. If they’re either employing people right now and they want to grow or one day they have the potential to grow a business which is contributing to our economy, they are creating new value, they are doing disruptive things, then we want to serve those people, we want people that are going to be able to create new value in this world.
The equity model presents a lot of legislative barriers. Was it challenging for you to overcome those barriers?
Extremely challenging, we spent two years in the making to overcome those hurdles and barriers. The legislative framework has been very challenging but I appreciate that because crowdfunding is getting a lot of attention right now and there’s a lot of people out there that are launching CF platforms and think it’s just technology. It is not really, the technology is the easiest part of it, behind the scenes there are a lot of processes, we have a tightrope to walk and that tightrope is between making it easy for people to invest, bringing in new sources of funding, not just promoting to the same old angels, VC and sophisticated investors. At the same time it’s doing this in a responsible way whereby people understand what they’re investing in and they understand the risks involved. This is a big challenge but we’ve been working on that process of making sure people understand what they’re doing with creating lots of video, lots of training, lots of procedures whereby if you’re not right to be investing in this then you wait. We’re the only platform that I know of that integrates with credit agencies and we integrate with Equifax, so everybody needs to have a real identity. We have a social capital scoring where you have to add your social media profiles, and we’re doing a lot to make sure that people are who they say they are, they invest in the right types of things for them, and as a business and entrepreneur you don’t get people you don’t want to invest in you. And the regulatory framework helps with that, it makes everything a lot more responsible, it just makes it harder and more challenging but they’re there for a reason.
Can you expand a bit on the social capital score?
Everyone who creates their profile in BankToTheFuture.com has the opportunity to build a social capital score. We believe that in the future your credit rating will be important but how you behave online will be a big indication of your success in this new world. We believe that online influence is really important for crowdfunding and crowdinvesting, so we have an online influence score. We also believe that if you’re going to be borrowing money from the crowd, you need to be in the right
credit situation, so we integrate with traditional credit scoring, but we also use the crowd to validate or verify your identity, combining the traditional way of verifying ID with the crowd. We want you to have your real photo, we want you to have your real name, we don’t want you to be doing things under anonymous user names and pitch as Fred Flintstone, you’ll get bonuses for open, transparent and honest behaviour, you’ll get better terms, you’ll be finding it easier to raise
finance. We recognise that there are people out there who are perfectly good for crowdfunding and crowdinvesting, but they may not have any credit cards or something may have happened to them in the past and it’s not the full picture. One seventh of the world has given a lot of their data to social networks, so we want to use those data in order to create a more open and transparent environment where people understand the relationship between investors and people raising finance.
At the end of the day crowdfunding and crowdinvesting are not for everybody, we do serve a niche, but the people who are going to be successful at this type of funding are people that have really integrated and embraced social media, and therefore to us it’s really important that people behave online and they only say things they would say under their real identity.
Image credit: GEF Forums
With the latest legislative changes in the US, what are the implications for equity-based crowdfunding in general?
It’s raising the bar. From what I know there’s a load of people that are going to be entering the equity crowdfunding space in the States. I think the legislation is going to help provide a framework for how people should do this, I think we’re going to see a few players win most of the volume just like Amazon has most of the volume and Ebay has most of the volume but there’s room for lots of niches too. However there’s a network effecting crowdfunding where whoever owns most of the people and the investors will attract most of the attention. At the same time everybody crowdfunding can bring their own crowds in, so the platforms in the niche can be a tool. The legislative framework is brilliant, it has validated our market, it’s taken us away from “are we doing something that we shouldn’t be doing?” to “actually this is a very serious product that presidents are talking about”.
Do you think this will be an obstacle in Europe, where there is a lot of diversity among countries in terms of legislation? For example, could people from another country invest in a project on BankToTheFuture.com?
No, our first version of the platform is only open to UK investors, and in order to launch a pitch you need to be a UK resident, however if you want to donate to a project as long as you’re donating in pounds you can do it. But no, unfortunately the environment is not enough of a union in my opinion, there aren’t crowdfunding platforms that can go Europe-wide yet.
Do you see crowdfunding as a sustainable change in the way we’ll be investing in the future?
I think crowdfunding is less disruptive, more complementary to our existing system, I think there is no real way of getting finance for ideas outside your friends and family and people that just happen to give you the money. Crowdfunding solves that problem beautifully. If you can’t put together a nice video pitch and pitch your vision, then there’s two things wrong. Either you don’t have someone in your team who can pitch it, or the market just isn’t interested in what you’re doing. Crowdfunding gives you the opportunity to test your skills as an entrepreneur or project creator to see whether you can take what you want to create and put it out in the world.
Crowdinvesting is going to be very complementary to angels. As we get better and more sophisticated in valuing companies and doing due diligence, I think the angels are going to embrace it, they’re very resistant at the moment because they don’t like to put themselves in the same category as the crowd, they’re still resisting Facebook, but that will change with time.
VCs have a big problem, they see far too many pitches which are not investment ready proven with proven teams and in the UK they only invest in those. So if we do things right with the whole crowdfunding/crowdinvesting model, as you need more finance you can go to a venture capitalist and be investment ready and that’s what we’re focusing on, getting people investment ready, and – who knows – our dream is that one day we’ll get the traction where we can do the level of VC funding on our platform.
We mentioned that there’s been an explosion of CF platforms in the past few months. What are the implications of this?
I think just like in social networking there’s room for a social network for every niche, with crowdfunding there’s room for a crowdfunding platform for every niche. I really do think there’s merit in having people with a finance background when you’re doing crowdinvesting, I’m a little bit apprehensive when I see people without a finance background setting up in crowdinvesting. I think it is our duty to protect this industry, to make sure we all work together to implement the best processes, and we should work together as in the true nature of crowdsourcing and crowdinvesting and funding to really make sure that we protect this industry because we are presented with the most beautiful opportunity today, it’s the perfect environment for change. We have a completely corrupt banking system, but we also have a massive amount of talents that can’t get job. They can work from home. The costs of starting a business have significantly reduced to a smart phone, a laptop and an internet connection, and almost everybody has those. Today we’ve been brought this beautiful thing called crowdfunding which gives the opportunity for people to fund the lives they want to live by creating new value. We need to protect that and we need to do this well, it’s going to be an amazing opportunity to see this industry flourish and an absolute opportunity to turn this economy around into a more transparent environment.
Thanks again, Simon. And good luck with BankToTheFuture.com