Fuck Them – We build our own

By Tarmo Virki | October 25, 2016

The story of FundedByMe was first published in 2015-2016 winter issue.

In 2010 Daniel Daboczy and Arno Smit wanted to launch a Kickstarter campaign for a video-site for sharing ideas to make the world a better place. Kickstarter turned them down, saying the idea was not valuable for the American community. We spoke with Daniel Daboczy about how the global market leader in crowdfunding provided the spark for the birth of FundedByMe, a strong Nordic rival to Kickstarter itself.

What was your reaction?

We got extremely upset, and we said, “Look, fuck them. We can build our own.

How difficult was it for the two of you to launch a crowdfunding site in 2010?

It was tough because no one knew what we were doing, so we decided to crowdfund our crowdfunding plan. We actually set up a collection for three months. I said we needed to raise a thousand euros to launch and what happened is we pitched to a million people and said, “Look guys, we’re launching a crowdfunding site and this is crowdfunding, this is how it’s going to work, this is what we’re going to do.” That PR and talking actually allowed us to launch with 12 cases aligned.  A lot of people would make the mistake of launching first and then starting to chase clients. It was tough because we didn’t really know what we were doing and we made a lot of rookie mistakes.  Luckily enough we had the in-house tech knowledge so we could change, but the biggest problem was the funding because my co-founder and I were extremely non-fundable on paper. I’m a Romanian art major and my co-founder is an African coder – that’s it on paper.  We are not people who should succeed and especially not succeed in changing the financial world.

Not having a financial background allowed us to look at the problem from a user perspective.  “How  should  this  be?”   rather than how it is.  Once we built it we asked permission from lawyers and we said, “can we launch this?” They said, “no, you can’t launch this.” We had to change it once we had built it.

How would you describe running a business that is involved with so many companies?

It’s like having our own business to take care of and at the same time we have to take care of others’ businesses too. To help them and fund them and give them advice and deal with their anxiety and their dreams and everything and at the same time, of course, our company. It’s like operating many companies at the same time.

How many do you usually have running simultaneously?

We try to keep the balance and that’s extremely crucial, because you don’t want to have too many companies and you don’t want to have too many investors, but we have also now started to do investor events. We just had an investor event at NASDAQ and we packed the room with like 200 people – investors watching and 13 companies pitching – and the majority of those 13 went live on basically the same day. There was quite a lot of work to be done with that.

I think our pipeline right now is 300 companies. Out of the 300 most likely 70 could launch in the next month. I’m not sure that they will launch, though. Saying it could launch means we are representable and we feel that they are trustworthy. Then, of course, we have some loan cases.
We also have the reward-based crowdfunding which basically runs itself. We don’t really curate that so much anymore.

Why has your focus shifted from the reward-based programs?

There are two major reasons. One, we realised the people in the Nordics and Scandinavia and Europe don’t really donate as much as we thought they would.

Yes, we donate quite a lot on Kickstarter but not as much as the Americans — we don’t have it in our culture. Two, we think that equity is the future of crowdfunding because if you look at donation-based crowdfunding it has a couple of problems.

One is, of course, the people are focused on delivering an item and usually, they are late or can’t deliver at all, and even if they deliver the company stands at zero because it’s a cost to deliver. At that point it needs equity.

On the other hand, of course, if you look at the clients then yes, you want to support something and you want to get the gadget.

But if the company takes off due to your help you want to be part of that.

In Europe we understand ownership, so we thought; ownership is the future of crowdfunding and we added equity crowdfunding.

In how many countries do you offer equity crowdfunding nowadays?

We can do it in almost any country in the world. Certainly, there are specific countries which we need to address but since we don’t deal with the actual transaction we are not seen as a broker or an intermediary. We are basically a dating site and for a dating site you don’t need permission to operate. You just need to have rules and regulations.

A dating site – it’s an interesting comparison.

Well, I think it’s important so that you understand, because a lot of crowdfunding sites out there in the world have taken on the model of taking care of the entire deal, and I don’t think that’s important. In the funding part, the tough part of the funding process is actually meeting somebody who wants to invest in you and vice versa. For an investor it’s tough to find the perfect deal. To actually deal with transactions or the contracts or the practicalities you have a million people who can help.

That’s standard, basically. We said, “look, let’s focus on the hard part,” and the hard part is to make sure that people from all over the world can find deal flow from all over the world. We are extremely good at that. We are leading in Europe on cross-world investments.
Also, our investment averages are double those of Crowdcube, for instance. We have over six thousand euros as an investment average. Crowdcube has three and a half thousand or three thousand two hundred or so.

Is there any dedicated or initiated campaign from your side to drive it? What’s the reason why it’s so high?

I think we’ve been around for such a long time that people see us as a good opportunity for their investment and I think there are also people who are from different demographics. When we started this platform in 2010, we thought that we would create a revolution and convince the average Joe to invest – the guy working in a Taxi or a coffee shop – but it shifted focus and instead of having the majority we went to the early majority, which is a very different demographic. These are people who have a good stable economy, who have a house and other opportunities. It went from early average to early majority and I think that’s why our average is high.

We got a few big chunks of investments like a 100 thousand euro investment at one time, you know? Top tier investors are using our platform. We work quite a lot with leading investors: Aggregated, Syndication and pre-vetted deals. They already have a bit of funding and then they have a need for crowdfunding. Then a lot of other people trust us more.

So if we were to do equity crowdfunding for CoFounder there should be leading investors and commitments in place before anything is launched?

Well, we have statistics for that. We did quite a lot of studies on our equity and we can prove that if you have a lead investor or have won an award or have some kind of a grab or something similar, the likelihood of you succeeding increases by 32 percent. That’s quite a lot.

We also see that it doesn’t matter what kind of education you have. It does matter where you live though and it matters what sex you are. We are really good at funding female entrepreneurs. We have an almost 100 percent success rate. We see, for instance, that it doesn’t matter how old or young you are, or what experience you have, but there are a lot of statistics. I can send this over to you if you want.

The perception is that the entrepreneurship is more male-focused. I’m sure that out of the total amount of campaigns the females are the minority, right? How significant a minority are they?

Well, you know right now female entrepreneurs don’t dare to get funding. Usually, they get funding when they are already proven so they go to funding too late. They try to get traction on their own. Also, we see that female entrepreneurs tend to under-evaluate themselves compared to the guys. Guys tend to over-evaluate themselves. I would say right now we’d be lucky if we see ten percent of female entrepreneurs versus ninety of men, because there are very, very few female entrepreneurs who are looking for seed funding. They have a different risk appetite and don’t dare to ask for funding before. As a result, they don’t need seed funding, they look for growth funding.

What about the geographical split of FundedbyMe? My gut feeling is that you’re still a relatively Swedish company?

Not really. We are 55 percent Swedish but we are extremely strong in Finland and Spain. Of course we have offices in Singapore and Malaysia and we see a lot of traction from Asia. We have 116 countries in our membership system and 74 different countries have actually invested.

Yes, of course, we are strongest in Sweden because that’s where we have our core, that’s where we started, that’s where I live.

I would claim that we are one of the only truly international crowdfunding platforms in Europe though.

What’s the story behind your move into Asian markets?

There’s a couple of reasons. We saw that you need to have a long-term strategy in every company and if you look at the UK platforms they are striving towards the U.S.

I think the U.S. is going to be a mad house for the next five years.

Asia is extremely interested in our model and we find similarities between Scandinavia and Southeast Asia. Asian people tend to want to invest into European and north European companies.

A lot of the northern European companies want to grow into Asia because it’s a huge market there. We feel that we can cater for our companies to give them potential growth into Asia and we can cater to our investors by giving them a deal flow both in Asia and in Europe. But at the end of the day, it’s extremely simple: we have been lucky enough to have investors from Asia in our company who have a ton of endless possibilities and we do believe in Asia far more than the U.S.

If you look into the future of FundedByMe what other big trends could you see having an impact on you in the coming years?

Well, of course, legislation is happening all over the world right now, or at least regulation. We welcome that. I think also that a lot of people think that just because we have had Facebook for ten years that we are internet savvy – we are not. We are still extreme amateurs. I think a financial penetration and change of financial markets is happening. It was started by crowdfunding and then by bitcoins. People have taught us to think differently about our income and our own money because in the last 400 years the bank has told us, “if you don’t give us the money to hold somebody will steal it from you.” They created this huge scare. Right now, for instance, you yourself or myself we think that money sits still in an account and we should ask permission to use that money. That’s changing dramatically. A lot of people understand more and more that they are in charge of their financials and they want that to work for

A lot of people understand more and more that they are in charge of their financials and they want that to work for them, because right now we are salary-slaves and then we try to consume the funds as soon as possible. What I think will happen is that we’re going to understand more and more about financial systems and start using financial systems more and more. That’s a huge trend that I’m seeing a lot. People are taking control of all the income and the money and will travel with them rather than leaving it sitting in a bank account. Secondly, I definitely think that crowdfunding is not a novelty anymore. In a few years, it’s going to be an established part of—it is already. We see it in Finland. For instance, we funded Yogaia. Yogaia got funding three months after us and then nine months later they got a serious round of funding by Nokia Ventures, venture capitalists. What happens in those cases is that suddenly the crowdfunding is part of the ecosystem rather than absorbed or a quirky new thing.

What would be your few tips for the people thinking about doing equity crowdfunding? Where should they start from in their preparation?

Well, certain campaigns can go live quite fast. The preparation of the campaign is not what takes time.

Usually, you should have a few weeks before you go live just to start warming up your networks and warming up your team and saying, “this is happening,” because successful campaigns don’t need an awesome pitch, they need awesome legwork – pre-preparation.

Of course, the pitch is crucial, but it’s not as crucial as legwork.

We’ve seen brilliant pitches fail just because the entrepreneur is passive and we’ve seen really shitty pitches succeed just because the entrepreneur is active. We tell people, “try to find the perfect sweet spot, which is the right timing, the right amount to raise and the right offering.” That’s the trifecta you need to have. The right timing meaning that you need to launch in a period where people are extremely prone to invest. The right offering saying, “you need to make your offering interesting.
You need to have the right valuation and a good deal.” It really works. The right valuation means saying, “even though you think your company is worth a billion it’s most likely not worth it right now. Make sure that the people who invest join you at the right time to have the opportunity to make money with you.”

The presentation and the offering are crucial. Make sure people understand why it’s a good deal.
Secondly, make sure that it is actually a good deal. A lot of people tend to over-shoot. Do you actually need a million? Of course, everyone would want to raise a million but maybe it’s enough to raise 200 thousand, maybe that’s the point. You just need money, momentum and to move forward.

What’s the sweet spot? What’s the level of investments that make sense in our Nordic community?

You don’t want to stay and get stuck at 90 percent. You want to reach 100 percent as soon as possible. That’s why it’s better to aim for something realistic so that you can actually raise and leverage that. For instance, one of the best success stories we’ve seen is when someone did a crowdfunding campaign, used that money and kept their promises and the deliverables, then delivered and said, “okay guys, I kept all my promises, all my deliverables and now I’m ready to take the next step.” The initial funding and the evaluation, that’s the absolute best way to go ahead.

That’s clearly a good tip for CoFounder too.

Yes, because it seems that you have to take everything in life step-by-step. Look at FundedByMe: the first money we raised was seven and a half thousand euros. That was the hardest money we raised ever, seven and a half thousand euros. Look at Facebook and everybody thinks, “look at how successful Facebook is,” but it was tough at the beginning, it was tough for them too. History is written by the winners and when you look back it looks easy. The first time you kiss a girl it was extremely tough to do but when you look back you think, “oh, it was easy” because you’ve kissed other girls.

It’s the same with crowdfunding. It is a lot like dating. You can’t get married from day one, you have to first make yourself available, then meet somebody, then like that person, then maybe sign a contract and then get married. It is a process and you have to take it step-by-step. There are some people who do get married in Las Vegas the first night they meet but they get divorced quite soon after. It’s the same with companies. If you raise money too fast or grow too fast you will fail because you will miss a lot of issues that you would have seen. The problem is not us but that the market sets a lot of pressure on us. Investors want us to become multi-billionaires overnight. They want to have the money back as soon as possible.

A proper entrepreneur builds something heavy and steady and long-term, rather that building for a quick exit.

Thank you for the interview – it’s a fantastic story.

It is so important that you say that and I’m so happy that you say it because we’ve been struggling so much and it’s been so long. Three years ago nobody believed in this and if I had talked to you two or three years ago, maybe not you but your peers would be extremely skeptical. It was so hard for us to get the first article. It was really tough, but we have created that thing and almost a thousand jobs by funding people and that’s kind of awesome. A thousand jobs in a recession. It’s not easy. I think people forget why we entrepreneurs matter because even entrepreneurs fail.
If you look in ten years 99 percent of the companies attending Slush this year will be dead – 99 percent I would say. The thing is, every one of those 99 percent that have died still have matured, still have learned something, still have pushed society, still have done something; so we forget that it’s actually the entrepreneurs who are working hard. Sometimes people lose the core when they read about billions here and billions there and stuff like that.