livetree - funding options guide
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Introduction
You want to make your idea happen. This guide will walk you through
the various funding options available to you, to help you do just
that. Whether you use LiveTree or not, this guide is essential for
understanding the various options available, and for discovering the
best fit for what you are trying to achieve from an informed standpoint.
We have a team of expert advisors to take you through the funding
process, from first pitch to realising your project’s
reality. We support and embrace all kinds
of creative projects, spanning from film to
architecture, music to fashion and everything
in between.
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What is reward based crowdfunding?
Reward based crowdfunding is the process where people (the ‘crowd’)
fund your project in return for rewards that you define.
Before we dive into the details of the process it ’s well worth understanding the terminology behind
crowdfunding:
Creator
A person (like you!) who creates a project on LiveTree that requires funding. A project is a clearly
defined piece of work with a funding goal and a deadline. Think films, books, art exhibitions, or
even community buildings. Creators ask backers (otherwise known as ‘the crowd’) to fund their
projects in return for rewards. This funding method is called rewards-based crowdfunding and is a
standard funding model used as an alternative to traditional funding methods, such as bank loans.
Rewards
Rewards are designed by the project creator. Rewards give something back to the people who fund
the project. Rewards vary drastically between projects, for example, they could range from a one-
of-a-kind experience to limited edition copies of the creative work produced by the project. It all
depends on what’s relevant to the project.
Funding goal
The target amount of money the project creator is trying to raise. Creators budget this amount
based on the cost of bringing the project to life.
Funding deadline
The date the funding is expected to be raised by.
Backers
Are people who help creators by pledging money to their projects to help them reach their funding
goal.
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Branches
Are people who promote projects. Branches give creators the chance to give back to the
community and those involved in helping to promote the project. Branches range from individuals
to magazines to bloggers. We have partnered with a number of popular media outlets and brands
that ‘branch’ LiveTree projects, and who in turn earn commission whilst supporting our creative
projects. Branches earn money when they refer someone who makes a pledge toward the project.
Branches refer people to the projects they choose by sharing the project. This creates a Branch link
which can be shared through Facebook, Twitter, email or any other channel.
Branch link
Is a link created when you share a project. You can share any project by simply clicking the share
button. This will create a branch link which you can share via email, Snapchat, Twitter or any
other popular channel. When someone clicks that link and backs the project you earn ‘branch’
commission.
Invited circle
Is the people you invite to join LiveTree. It ’s super simple - someone in your invited circle is
someone who joins LiveTree because you either invited them through your ‘LiveTree friends’ page,
or they joined by clicking on a Branch link that you shared. As you helped them join, you become
their sponsor. As their LiveTree sponsor you earn branch commission every time they make a
pledge to a project. As long as they have not been directly referred to the project through another
member’s branch link it does not matter which project they back - you will earn branch commission.
The invited circle is a way to continually connect and build a community beyond the single project
you may be involved in.
Project Charity
Creators can elect to give a percentage of their project funds directly to one of our partnered
charities. Aside from the pure donations creators receive, charities can also market and aid the
project. Ultimately this can further expand the project’s reach, in the process building community
and increasing donations.
Analytics and visualisation technology: An important part of crowdfunding is understanding exactly
where your support is coming from! We use the very latest technology to give creators, branches,
backers and our partner community, insights into the data they share and that is most relevant to
them. This helps creators connect and find new communities in a completely revolutionary way. We
call this technology, BranchNet technology communication. It goes far beyond Facebook, Twitter
or the latest social channel. We provide a way for our communities to continual develop by helping
them harness in-depth, unparalleled analytics.
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Match-funding
Is additional money awarded to project creators when they meet certain criteria from external
organisations. We have partnered with local councils, brands, non-for-profits and other grant-
makers that offer match funding. We introduce project creators to our extensive network of
partners so they may unlock additional funding. This can lead to the achieving of goals bigger than
even they envisaged and further helping them in developing their community.
Crowdfunding terminology - Let’s put it all together…
Creators create and list a project with rewards, a funding goal and a deadline on LiveTree. They
select a percentage to give to Branches and their (optional) Project Charity. Creators work with
LiveTree who may also recommend match-funding partners who will help creators raise even more
money and expand their backer community.
Backers make pledges to fund the project in return for rewards. Branches promote the project
by sharing branch links and helping backers discover the projects that they are most likely to be
interested in. Communities form around the project and are continually encouraged to develop the
project through invited circles and analytics.
Project creators define their own rewards, funding goals and deadlines. They often spend weeks
researching the budget for their project, putting together their promotional videos and planning the
project rewards. LiveTree works seamlessly alongside project creators to explore match-funding and
branch communities that could support their project. Once they are ready, they launch the project
to a community of backers who fund the project.
If the project falls short of its funding goal, backers are given the option to gain a refund of their
money. If backers feel the creator can continue with a reduced budget the funds are made available
for the project creator. LiveTree does not operate an all-or-nothing policy. We believe projects
should not be restricted by computer based rules. Instead we have built a platform where backers
and creators decide, collaboratively, what should happen to the funds if the project does not reach
its funding goal. Backers have up until the project funding deadline to ask for a refund. If they
back a project, let’s say on the project funding deadline itself, they have 2 weeks to reconsider and
request a refund. Backers are always protected and given a minimum two week cooling off period
after they make a pledge to a project
Let’s talk
Start a project Get in touch
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Alternate funding options
· Are you currently setting up a business to fund your creative project?
· Are you an early stage start-up or growth business?
· Does your business need a cash injection to grow?
· Do you want to tap into a network of alternate funding solutions?
Alternate funding methods are an incredibly versatile form of finance – suiting every form of
business, from early stage start-up to mature stage corporate giant. If you answered ‘yes’ to the
questions above, then it may be that alternate funding is a route that you should consider.
We work closely with FCA regulated partners to offer two other funding options. The first is equity
based crowdfunding. This is where you give away a bit of ownership of your company (called shares)
in return for investment. The second instance is called debit crowdfunding and is similar to a loan.
How does equity crowdfunding work?
Equity crowdfunding is the process where people (known as the ‘crowd’) invest in your business in
exchange for shares in your company. A shareholder, in exchange for their investment, takes a bit of
the ownership of the company and stands to profit when the company does well.
More detail on equity crowdfunding
Sophisticated investors use their investment into companies as a way to reduce their tax liability
(i.e. they pay less tax when they invest in your company). In the UK there are three main types of
investment vehicles used to promote equity investment in return for tax relief. These are SEIS, EIS
and VCT.
SEIS
SEIS is short for ‘Seed Enterprise Investment Scheme’ – which is a scheme operated by the HMRC
which provides significant tax relief for those who invest in either an SEIS fund or SEIS eligible
venture directly. Effectively, SEIS provides income tax relief of 50% on up to £100,000 invested.
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There is no Capital Gains on the sale of shares held for at least 3 years. The loss relief is based on
the risk investment multiplied by the investor’s tax rate. This means if the company fails the investor
could be eligible to reclaim their entire investment in the form of tax relief. SEIS is only eligible to
early stage companies.
Read HMRC’s ‘Seed Enterprise Investment Scheme’ Guide
EIS
EIS stands for ‘Enterprise Investment Scheme’ – this is another HMRC operated scheme, although
it is aimed at more established companies. It again offers impressive tax relief for those who invest
in either an EIS fund or EIS eligible venture directly. Investors can offset their investment against
income tax relief of 30% on up to £1,000,000 invested. There is no Capital Gains on the sale of
shares held for at least three years and, similarly to SEIS, EIS protects investors by offering loss relief
on their ‘at risk ’ investment multiplied by their tax rate. EIS also offers no Inheritance Tax paid on
shares bought through EIS and held for two years.
Read HMRC’s ‘The Enterprise Investment Scheme’ Guide
VCT
VCT is short for ‘Venture Capital Trust’, which is a tax collective investment scheme that invests in
small companies, either unquoted or trading on the Alternative Investment Market (AIM) with the
intention of returning a profit to investors. VCTs are generally designed for sophisticated investors
and are typically run by fund managers (which reduces risk); this form of investment generally
involves established companies. Venture Capital Trusts, which are themselves listed entities on
the London Stock Exchange, came to the market in April of 1995 and were designed to encourage
investors to invest directly in a range of small, higher-risk companies whose shares are not listed on
a recognised stock exchange.
Read HMRC’s ‘Venture Capital Schemes Manual ’
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What is debit crowdfunding?
Debit crowdfunding (sometimes called ‘crowd lending’) works in a similar way to a traditional bank
loan, but instead of a bank providing the money, the ‘crowd’ does. Typically, the loan to your
business will need to be paid back with interest ranging between 6-8% per annum, with a lump sum
paid at the end of the repayment term.
More detail on debit crowdfunding
Mini-bonds
Bonds are simply a form of debit. Typically mini-bonds have a term of three to five years and offer
rates of interest such as 7% or 8%. They are still relatively rare, some high-profile business such as
John Lewis have offered mini-bonds.
Peer-to-peer lending
Peer-to-peer lending is where individual savers or investors provide you with cash directly, in the
form of a loan. You’ll typically pay lower interest rates than you would ordinarily, while investors get
a better return than they would with a typical bank or building society savings account.
Invoice financing
Invoice financing is lending based on the money owed to you by others. Essentially you show
the invoices of this outstanding money, and money is then lent to you based on this. This helps
companies to manage their cash flow. This is particularly prevalent where a company must pay their
suppliers’ invoices on a 30 or 60 day term, but operate in an industry where the invoices owed to
them must adhere to a 90 day term.
Are you ready for investment? Have you decided whether to crowdfund or choose an alternate
funding option?
Whatever the route ahead looks like for you and your creative project, it may be time that we talked.
Get in touch
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Community Shares
Community shares is a company structure that enables investment through a collective. Typically, community shares are a suitable investment structure for social groups such as, pubs, community centres, green energy companies or other collectives that already have a network of supporters and operate for the greater social good.
Is my group eligible for community shares?
Are you happy to be owned by the crowd?
Every person who invests in your community share venture is issued a share and given a single vote.
It doesn’t matter how much each person invests, every individual will have an equal say in how the
group is operated.
Ultimately this structure is powerful because it allows you to tap into a network of active supporters
who actually care about your project. It will help your group grow but, of course, you’ll need to be
happy about sharing control with your investors.
Do you have a network of supporters?
Your supporters can range from the regulars in your local pub, to a community that shops with you,
and everyone in between. Your supporters are simply people who care enough about your project
to contribute money to turn it into a reality.
Does your group require capital?
A community share issue is used for long term benefit – funding a project that may be a social game
changer. They cover one-off substantial costs that have long-term benefit. For example, the shares
could raise funding to cover everything from paying for new equipment to buying or renovating a
property.
If the answer was YES to each of the above questions, then read on to discover how we can help.
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To be eligible for community shares you must incorporate your venture as either:
• A Charitable Community Benefit Society
• A Co-operative
• A Community Benefit Society
Don’t worry if your venture is a limited company or has a different legal structure. You’ll just need
to convert or create a new structure for your venture if you decide you want to launch a community
share offer. Our team can work hand-in-hand with you to help you through the process.
What are the benefits of community shares?
Community shares offer a way for your supporters to take ownership in return for capital. Your
supporters receive tax breaks and have a vote in a project they are passionate about.
Pubs, sports clubs, heritage buildings, farms, shops, energy firms and many more issue community
shares because they already benefit from the wider community in some way. It ’s really a powerful,
and naturally fitting, way to raise finance for organisations that already boast core values defined
by social benefit. We at LiveTree, like these organisations, are more than just for profit. We work
with communities to help promote positive social change. And remember, because each person
who buys a community share in your enterprise has a vote in how your enterprise is run, you’ll gain
a community of champions who are emotionally, as well as financially, invested in your project’s
success.
For your supporters, there equally lies an array of benefits – such as their receiving generous tax
breaks (up to 30% - 50%) from the amount they invest and the interest they are repaid. This is
accompanied by the fact that Community shares can often outperform ISAs or low paying savings
accounts. Given that there is currently £1 trillion held in UK savings accounts, this benefit can truly
provide many with an alternative for their money. Together, they form a persuasive argument for
encouraging individuals to back your enterprise; not only do they recoup the money through tax
breaks and earn more than a savings account, but they also have ownership in an enterprise they
truly care about.
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Community shares is a non-debit obliged, meaning you’ll receive the funding you need without a
massive debt hanging over your head. It ’s not like a bank where, whether you can afford it or not,
you are forced to pay the money back.
Community shares return profit back to investors but over a longer term and to conditions
you define. You’ll set out the conditions as you see best fits the project in your business plan.
Supporters have a mutual interest in seeing your project succeed so you’ll gain a network of active
vocal customers and advocates.
Unlike donations, research shows people who share ownership will be more likely to dip into
savings to buy community shares. Typically, 5 to 10 times the amount you’d receive through direct
donations.
Unlike a normal share issue, community shares do not fall under the heavy financial regulation of
the FCA (Financial Conduct Association). In layman terms, this simply means that you’ll save tonnes
of time-consuming paperwork and money while issuing shares. You’ll also avoid the solicitors and
costly, boring financial processes normally associated with company shares. Expense is kept to a
minimum to make them a cost-effective way to raise a significant amount of money for your group.
Interested in setting up a community share project
Get in touch
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Let’s get started… we can’t wait to meet you
Get funded. Branch out. Make a difference.
Start a project Get in touch