Crowdfunding: Has the Wellness Industry Lost Interest?

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Four out of every five crowdfunding campaigns fail, yet for many fledgeling wellness startups it’s the only way to turn a pipe dream into reality. Is it the best option? Is it worth the risk? And, if so, what’s the secret to success?

This summer boutique fitness studio 1Rebel, the self-anointed “King of Gyms”, opened a fifth all-singing, all-dancing spin studio amphitheatre in London’s Victoria. It’s part of an aggressive expansion across the capital, made possible after securing £6.6 million in funding from private equity firm Codex Capital.

Read More: 1Rebel Opens World’s First Spin Studio Amphitheatre In London

In the past, 1Rebel founders James Balfour and Giles Dean raised £4.5 million across two successful campaigns through crowdfunding, a FinTech innovation that has revolutionised finance raising, enabling budding and established entrepreneurs to bring new business ventures to market around the globe.

Equity crowdfunding models, such as CrowdCube, Seedrs and Indiegogo, and rewards-based models, in particular Kickstarter, have enabled the wellness sector to thrive, with benefactors ranging from one-man operations to established retail brands looking to expand their empire across the capital.

But for every successful Core Collective (raising £2.1 million), WIT Fitness (£840K) and ManíLife (£100K) campaign, there are companies such as tech startup Fiit ($3.2 million) and indoor cycling giants Peloton (an eye-watering $444 million) who have bucked the trend, relying on the experience and deep pockets of opportunistic venture capitalists and angel investors.

Read More: 5 Steps To Creating A Record-Breaking Crowdfunding Campaign

Is this a sign the relatively young model of crowdfunding investment is losing its youthful appeal? Is the bubble about to burst? And what does it mean for aspiring wellness entrepreneurs on the hunt for investment to launch their business?

Should you follow the crowd?

It’s a dilemma facing James Dashwood, Founder and Director of new tech startup Outset App, which connects wellness professionals with clients on demand. “The problem with crowdfunding is it’s very labour intensive,” he says.

“It takes a lot of work to plan your campaign which can distract you from launching your business. But having said that it gives you massive visibility and potentially a larger number of customers who will beat your drum. There are massive plus points but also downsides. It’s a very tough decision.”

Despite this uncertainty, the appetite for crowdfunding among both the public and businesses in the UK and across the globe shows no significant signs of abating. While the 17,000 projects launched in the UK in 2017 was 2% down on 2016, the total pledges increased by 5%, according to The Crowdfunding Center, which tracks the alternative finance industry.

Film, music and gaming remain the most popular projects, but the wellness sector makes up a healthy chunk of the £47.5 million raised in the UK last year. Between 2014 and 2018, 689 successful projects were identified under the banner of “wellness”. On average, these projects raised $34,285 and achieved 197% of their target from 312 backers, with Kickstarter proving to be the clear favourite platform.

Crowdfunding is helping drive gender equality too. According to a PwC report in collaboration with The Crowdfunding Center, seed crowdfunding campaigns led by women consistently outperform those by men – 22% of female-led campaigns reach their finance target, compared with 17% for male-led campaigns.

Crowdfunding: Has the Wellness Industry Lost Interest?

Image: 1Rebel

Level playing field

Crowdfunding is undoubtedly levelling the playing field for small businesses and startups too. “As a first-time founder with little previous business experience, there was no chance we could have raised as much as we did without crowdfunding,” says Joel Burgess, Co-Founder of nutrition app Nutrifix, which raised £193K from 375 investors on CrowdCube last year.

“It’s a different story in the US, where they’re willing to take a punt,” he adds. “In Europe, investors want to see revenue. They want to see you bootstrap your business first.”

To get the ball rolling, Burgess initially generated £20K through a hard-earned Just Eat accelerator, but after struggling for traction he turned to crowdfunding to breathe life into his vision. “We reached our target in just 11 days but it wasn’t plain sailing,” he says.

“Our main investor pulled out for personal reasons at the start and after only nine days we had only raised £10K. I was pressing refresh on the page every minute. It was incredibly stressful. Then suddenly one investor came in with £50K, sparking everyone else into life and creating the crowd mentality that helped us reach our target just two days later.”

Despite the stress and uncertainty, Burgess is adamant crowdfunding can only be a good thing for the wellness industry. “It can be nerve-wracking laying your idea out there for everyone to read and analyse and take apart, but if you’re successful with your campaign it provides real validation for your business.

“Seeing random people invest is so rewarding. It builds a ready-made community and customer base. And it’s created a network of 375 investors I can reach out to for advice whenever I need it,” Burgess says.

Smart money

Daniel Shellard, co-founder of Fiit, dubbed the “Netflix of Fitness”, acknowledges crowdfunding is an option if you’re starting out with zero cash in the bank.

But if you’re looking to raise serious capital and are confident there’s a captive audience for your idea, private equity funds are the only option. “For the size of the cheques we needed to cash, crowdfunding just wasn’t going to cut it,” he says.

The numbers speak for themselves. Last year $8 billion was invested in the UK through venture capital, according to a KPMG report, utterly dwarfing the £47.5 million generated via crowdfunding. However, the numbers can also be misleading.

“It’s like comparing apples with onions or gherkins,” says Barry E James, Founder of The Crowdfunding Center and author of startup handbook New Routes to Funding. “You’re more likely to get into Harvard than get VC funding – that’s how many get it. Crowdfunding, by contrast, is an open door and funds many more to the stage of being investible.”

Shellard, with prior experience of VC investment, had the connections to access funding that most first-time founders simply don’t. As a result, Fiit was able to secure $3.2 million seed investment from three partners through London-based Connect Ventures and Shellard is currently preparing for a second round of fundraising.

Being able to cherry pick your investors has other perks too. “Knowing exactly who your investors are and where the money is coming from is so important,” says Shellard. “It’s smart money. Our partners are proven, having backed the likes of CityMapper. They have excellent pedigree on building great products – that really sold us.”

Most importantly, they shared the same vision. “That’s so vital because there are inevitably going to be bumps in the road so you need to be heading in the same direction. With crowdfunding you simply don’t have control over who’s taking a chunk out of your business. It’s a risk we didn’t need to take.”

Crowdfunding: Has the Wellness Industry Lost Interest?

Image: FIIT

Worth the risk?

Risk taking is an inevitable part of any successful business but with only 20% of campaigns ending in success, can failing to reach your financial target do more harm than good?

Not at all – says James. “Four out of five crowdfunding campaigns might fail,” he explains. “But that’s because people rush into launching their campaign without understanding how the model works. Yes they fail, but they fail in a good way. Nobody loses money because no money flows. It’s a soft landing.”

Pebble Watch, the precursor to the Apple Watch, is the perfect example. “They utterly failed the first time they launched,” says James. “But Founder Eric Migicovsky learned his lessons and knocked it out the park the second time round, with the smartwatch becoming the number one, three and four most funded projects on Kickstarter.”

The all-or-nothing crowdfunding model is certainly preferable to taking out a bank loan, adds James. “You don’t have to repay it, for starters. If it goes well you’ll have acquired customers in the process of getting your funding and if there isn’t the market money doesn’t flow so you have no debt,” James says.

It’s also an effective training ground for entrepreneurs but it’s not for the faint of heart. “It’s hard work. It’s very demanding. You have to learn how to reach out to the crowd, how to articulate your business. You could defer that problem and focus on innovation but eventually, you’ll have to cross that bridge if you want to grow.”

Never a crowd

Ultimately, crowdfunding remains a very attractive, low-risk option for fundraising, especially in the wellness sector. And, according to James, it’s only going to become more popular as financial regulators become more familiar with the model.

“Academic work is showing crowdfunding is cleaner than traditional means of fundraising,” he says. “It’s very transparent. It’s very effective at self-regulating.

“In the past, the buy-in for crowdfunding has been limited because the people who advise entrepreneurs tend to be older, grey-haired folk like myself – they’re unfamiliar with crowdfunding so err against it. But in the future, crowdfunding will be seen as a part of life for any successful business and entrepreneur.”

For Outset App founder Dashwood, weighing up the pros and cons of crowdfunding his business, it’s the community aspect that appeals to him most – and the reason it will always provide something unique that traditional fundraising simply can’t.

“I love that crowdfunding could allow our members to invest in the business,” says Dashwood. “I love the idea of a yoga teacher putting in £100 and owning a bit of the company they work for. It would be like an Uber driver owning a bit of Uber. That’s the ultimate motivation. That’s something money can’t buy.”

5 tried and tested rules for a successful crowdfunding campaign

1. If possible, make sure you have 50% of your investment secured before launching. “Incubators and accelerators are a good option if you’re lacking funds,” says Shellard.

2. “Exhaust your network,” says Burgess. Don’t be shy. You’ve only got one month to reach your target and your friends and family can be your biggest advocates. “Get them to chuck in a tenner or at least share your campaign to maintain momentum.”

3. “Treat it like a fully synced up marketing campaign and start early, at least two months before you launch, to create a bit of FOMO (fear of missing out),” says Dashwood.

4. Use the tools at your resources. You don’t need to be an experienced marketer – Burgess leaned heavily on the Crowdcube blogs. Just make sure your proposition is crystal clear.

5. “Prioritise your foundation backers,” says James. “These people already know you and your brand. It’s only if you excite them and get them involved from the start that others will follow.”

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