The House Crowd is a peer-to-peer lending specialist with a different approach - through the provision of market-leading crowdfunded property investments, they are able to deliver consistent returns for customers. After an appearance on Dragon's Den where they didn't receive investment, they've gone on to raise millions regardless through crowdfunding and bootstrapping. Frazer Fearnhead, CEO and co-founder, chats to us about building a business.
The House Crowd pioneered property crowdfunding in the UK – what advice would you give an entrepreneur in pursuit of a great business idea?
First and foremost, don’t worry about getting it absolutely perfect on the first go – as very few entrepreneurs do. Instead, focus on testing the waters as cheaply and leanly as possible. If you encounter success early on, keep working on improving your strategy. Keeping costs low is paramount, since many businesses struggle to turn a profit – even after being in operation for several years.
At The House Crowd, we received a small amount of funding, but mostly succeeded by pulling ourselves up by our bootstraps. We were profitable within five years, but only because we listened to the market, tested lots of different concepts, and minimised unnecessary costs.
How did you protect your first mover advantage?
We had to be very flexible. This meant keeping close contact with our loyal customers to understand their needs - and making sure we adapted our offering accordingly. Public relations also played a big part in raising brand awareness. We found it be much more effective than advertising, especially since we were looking to keep costs as low as possible.
When did you realise buy-to-let wasn’t quite right and what was key to pivoting to P2P and property development financing?
Equity crowdfunding is a fantastic way of investing in property, but it does come with a couple of important caveats. The main one is that selling your shares in the property – and any sale of the property itself – is based on a voting system. So, depending on the outcome of the vote, your money may or may not be tied up for longer than expected.
When we started offering debt-based products in the form of peer-to-peer lending and property development investments, it became immediately apparent that they were a lot more appealing to our customers. These products are much easier to understand and have better liquidity – so investors’ money is not tied up for as long. Investors in property development also benefit from helping to support the building of much needed housing, as well as being able to build a retirement nest egg with predictable consistent returns - unlike stock market investing.
You were rejected by the Dragons but quickly raised the money you required despite this and now have a multi-million-pound company – what advice would you give an entrepreneur looking for investment? What are the most important things they need to do? And how should an entrepreneur react in the face of such misplaced criticism?
I was approached to be on Dragons’ Den because they wanted to feature more technology companies. What I quickly realised was that the Dragons don’t really know how to value technology companies!
Ultimately, we decided to tap into what we knew best – crowdfunding – in order to raise the funds we needed. Crowdfunding is more cost-effective and quicker than VC or angel investment – especially if you have an idea that appeals to a wide group of prospective customers. It also grants you greater control over the future of your business.
However, if you do decide to pursue VCs or angels, make sure to approach them with as close to a working product or solution as possible, as it will increase their confidence in your proposition. You will also need to demonstrate a willingness to take advice on board – and, where necessary – to give your investors a degree of control over strategic direction.
Was a business plan key to this because it outlined goals and strategy and timelines to potential investors?
Drawing up a business plan, especially when you have a brand-new idea and no idea what the market will be for your product, can be exceptionally difficult – mostly because you have to strike the right balance between optimism and realism. In a new and fast-changing industry like ours, there is no sure way to forecast the future and, as a result, planning for any more than 12 months ahead can feel a bit pointless. So perhaps, what aspiring entrepreneurs need to demonstrate most to potential investors, is adaptability.
In some cases – particularly when you’re pioneering an entirely new product or service – there is literally no precedent upon which to base a business plan. Instead, you have to rely on your personal experience and current cultural zeitgeist to really develop your idea. As a frustrated landlord, I wanted a better way to invest in property. I had a gut feeling and anecdotal evidence that others felt the same way – and there would be a desire for a solution to the problems faced by property investors. And just like that, the idea for The House Crowd was born. I can vividly recall the precise moment when I came up with it. I was (like some cinematic ‘lightbulb moment’ cliché) actually in the shower!
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