Just before Christmas we took a big step toward launching a new way for Kiwis to fund the things they care about. Applying for a peer-to-peer lending licence was the first public step we’ve taken toward offering a new product: PledgeMe.Debt.
To get this far it has taken months of research, picking brains, and blending ideas, now our application rests in the capable hands of the Financial Markets Authority. So while we wait for them to go over all the paperwork we wanted to give you a heads up about what this means because it’s not at all as scary as the name implies!
What is it?
PledgeMe.Debt will allow organisations (more on what that means below) to reach out to their crowds so they can fund bigger and better campaigns. An organisation’s crowd can lend it money and the organisation pays their crowd back with interest. It is a really simple way PledgeMe can further democratise what gets funded in New Zealand and offer an alternative to big ol’ banks.
It is going to work similarly to our existing project and equity platforms. Organisations will offer a campaign, their crowd will pledge, and if it is successful they’ll receive the money to go do the thing they said they were going to do. The difference with PledgeMe.Debt will be that the organisations will pay back the money they receive plus interest (and potentially other rewards).
The back story.
Debt crowdfunding is a growing space. Internationally it makes up two-thirds of the crowdfunding market — a market that’s doubling every nine months.
Modern debt crowdfunding started in the UK in 2005, with Zopa launching the first personal lending platform. After the Global Financial Crisis in 2008/9, debt crowdfunding platforms started popping up to provide fairer, more accessible and more transparent ways of funding. Moving into the twenty-teens, there has been further developments, the emergence of specialist platforms, IPOs for a handful of platforms, traditional institution buy-in, and government endorsement — particularly in the UK.
So this new way of lending is a growing space that is allowing a whole bunch of organisations to do amazing things.
Why we’re excited
We think we’ll be the first platform this side of the equator to run project, equity and debt crowdfunding campaigns on the same site!
We truly believe that crowdfunding is the future of making things happen; raising money, growing crowds, and making decisions that serve communities, big and small. Debt crowdfunding is a large unserved piece of the New Zealand crowdfunding pie and the time to sate the hunger is now.
Adding debt crowdfunding to our platform strengthens our ability to help Kiwis fund the things they care about. While equity is just for companies, debt allows a broader range of campaign creators raise larger amounts of money. It’s a more transparent way to raise money, compared to traditional avenues. Having this choice in crowdfunding options gives PledgeMe an edge when it comes to Kiwis seeking funding.
How is PledgeMe.Debt different from what’s happening already?
In 2014, debt crowdfunding began to trickle into New Zealand. Harmoney launched its peer-to-peer lending service which matches individual borrowers and lenders anonymously through their marketplace.
PledgeMe.Debt is going to do debt crowdfunding a little differently.
We’ll be offering a transparent campaign-led platform. Campaigners will be able to reach out directly to their crowds of friends, family, supporters, and customers.
This means growth companies, social enterprises, not-for-profits, schools, co-operatives and communities — organisations wanting to involve those around them to achieve their purpose — could be able to borrow from their crowds.
Unlike many peer-to-peer platforms, PledgeMe isn’t backed by a bank. This means borrowers will have a greater say over what, when and how they borrow and their crowds will be the decisive factor. This means the relationship campaigners will have with their lenders will be a lot different and, we believe, a lot more beneficial.
Who will be able to raise money?
Put simply, any organisation that can prove they will be able to repay the loan will be able to use PledgeMe.Debt.
One of the reasons we want to offer debt crowdfunding is that there is a demand for alternative funding sources. We’re seeing that in all sorts of organisations from companies to social enterprises, not-for-profits, schools, co-operatives and community projects. PledgeMe.Debt provides an attractive and realistic option for any of these groups.
Here’s the kind of scenarios that PledgeMe.Debt will work for.
Companies with a strong customer base and a few years of success in their back pockets, with intentions to grow their product/service. Using PledgeMe.Debt they will be able to serve new markets and achieve a new level of engagement. They may be looking to bridge a gap between equity raises, buy new equipment or bring in new expertise that will enable them to do more good. SMEs in New Zealand already borrow a significant amount from banks every year for these same reasons. For many it makes more sense to go out to friends, family, supporters, and customers for this money and activate a crowd rather than borrow from a bank!
Social enterprises which are changing our world by activating communities and changing perceptions could really capitalise on PledgeMe.Debt. For many social enterprises, especially early stage ones, selling a large chunk of the company through an equity raise doesn’t fit with their values and borrowing from a bank seems like a misfit with their motives.
Charities / not-for-profits / NGOs
Charities, NFPs and other NGOs wishing to educate and serve more people, scream their cause from the rooftops and grow and strengthen their relationship with their funder base may be eligible to debt crowdfund. Currently options for raising money are very limited for these groups.
Schools which want to improve facilities, become more self-sufficient and help teach students about basic economics and business can use PledgeMe.Debt too.
Co-ops and communities
Co-ops and communities that have a plans to reinvigorate their area and build capacity are perfect candidates for PledgeMe.Debt. If their vision is for sustainable communities, eco-villages and sharing economies built on pooled resources, trust and interdependence crowdfunding will support and reinforce their efforts.
When will we be launching PledgeMe.Debt?
We’re waiting on approval of our licence from the FMA. Once this is (fingerscrossed) granted, we’ll be rolling out the tech side of things for testing. It’s being worked on currently, so we’ll be ready to hit the ground running.
We’re already looking for organisations and campaigners who will benefit from PledgeMe.Debt and hope to have our first campaigns up later this year.
If you think debt crowdfunding might work for you or if you’re curious about how it works, drop me an email. Looking forward to hearing from you.
International debt crowdfunding stories that have inspired us
What originally caught our eye were the Burrito Bonds of London Mexican food chain, Chilango. They raised £2m from 700 investors and garnished the bonds with extra burrito rewards. Still a bit peckish for growth, they followed it up last month with a £3.4m equity raise.
Gibbon, the simian name synonymous with slacklining, decided to shift away from bank borrowing to fulfil demand for their product Stateside by going out to their crowd of devoted followers.
Pod Point wants to make moving around less damaging for the earth. A social enterprise making electric vehicle chargers, they’re Open Charge Bond raised £385,000 to fund the roll out of their Open Charge network of public, electric vehicle chargepoints.
Not technically a crowdfunding campaign but rather an insight into the power of debt for not-for-profits, Autism Plus, a charity that supports adults and young people with autism, learning disabilities and mental health conditions, borrowed from Charity Bank to transform derelict barns into a chocolate factory and horticulture enterprise, run by people with autism and other disabilities.
A Seattle adventure and nature travel tour company borrowed US$25,000 through Community Sourced Capital to design and fit an adventure hub for travellers to come together to learn, chat, share and plan. What’s more is that they provide proof of the model, having repaid their loan fully over 18 months.
A Californian school district issued municipal bonds (loans to fund state organisations) through a Neighbor.ly campaign, using the money raised to renovate and upgrade thirteen schools.