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126 Locavesting
a 39- year-old ethnographer with a wild mane and a penchant for
loud suits. Armstrong began exploring alternatives. He knew
fi rsthand the power of online social networks, and fi gured he’d
try raising funds over the Internet. Heck, he had nothing to lose.
“We didn’t know if it would work out or not, and we knew that it
was going to be hard work, but it was better than the conventional
options,” he says.
Armstrong and his team worked with securities lawyers to
navigate the regulatory thicket of the Financial Services Authority
(FSA)—Britain’s equivalent of our SEC—and set out to raise
£1 million in equity fi nancing from up to 100 high- net- worth investors,
in a sort of Internet- enabled private placement. Trampoline
closed its fi rst tranche of £250,000 in October 2009. A second
round hit a snag when an investor who promised a lucrative stake
turned out to be blowing smoke. But a year later, Trampoline
lined up another £300,000 from a roster of A- list investors affi liated
with major technology and fi nance companies.
Banking with Neighbors
As credit and venture capital have been harder to come by, entrepreneurs
are beginning to look past traditional sources of capital to
a broader range of potential investors. Increasingly, that means tapping
into their online networks through crowdfunding. The idea is
to collect lots of small sums—whether loans, equity investments, or
donations—from lots of folks, bypassing banks, venture capitalists,
and other middlemen. This pennies- from- many model is opening
up a new way of investing for entrepreneurs and investors.
Crowdfunding is a natural evolution of crowdsourcing, the
collaborative Internet ethos that gave us Wikipedia and the opensource
Linux operating system. Just as the contributions of many
individuals have created free or low- cost alternatives to expensive
commercial products, crowdfunding allows hundreds or thousands
of investors to take the place of traditional fi nancial gatekeepers.
By cutting out the middlemen, companies can raise
money without hefty fees and investors can access lucrative investment
alternatives, giving crowdfunding a distinct populist appeal.