The UK-based fintech startup goHenry recently raised £3.99 million through a Crowdcube crowdfunding campaign, making it one of the world’s largest equity crowdfunding rounds till date. Equity cowdfunding is becoming a viable alternative to traditional institutions (VCs, etc.) for Series A & B financing rounds. goHenry’s target group are the millions of European families with children that receive pocket money but face a digital and cashless future. We talked to goHenry’s CEO Alex Zivoder who gave interesting insights on fintech and fundraising.
What is goHenry?
goHenry is the UK’s first digital banking solution for families which aims to make kids smarter at managing money than their parents. We offer a pre-paid Visa debit card and app with unique parental controls, for young people aged 8-18. These tools are designed to help children and teens learn to earn, save and spend responsibly whilst giving parents peace of mind and an easy way to manage their children’s pocket money & allowance. With goHenry children gain independence and take responsibility for their own money, in a way individually suited to them, all under the watchful eye of a parent.
What problem do you solve?
goHenry was founded by a group of parents with a mission to make the next generation of young people better at managing their money than the last. Today 78% of children in the UK receive pocket money, which is similar to North America and Europe, yet many children still have no currency to spend in an increasingly cashless society while learning to manage money in the digital age.
Why did you choose equity crowdfunding to raise capital?
After a lot of diligence we believed crowdfunding offered a viable route to raise a meaningful amount of capital. As a company founded by parents, we were really attracted to the idea that we could be funded by parents too; allowing our customers to be part-owners in our company and support our journey felt like the right thing to do for our company. We have a large community of families who use the product, love it and trust us and this put us in a great position for crowdfunding.
Would a strategic / fintech investor not have been a better choice? Or VCs? What do you like about crowdfunding?
Not necessarily. While these are classic routes companies use to raise equity, crowdfunding has emerged as a viable alternative to raising capital. We’ve been fortunate to have a strong, private investment base and some close advisors who have helped us out. It’s an approach that has worked well for us and kept the business nimble and well funded. Raising money through a VC isn’t the only option for high growth start-ups and there is a tradeoff and pros and cons with VC money. The cons are that it’s expensive and it usually comes with onerous terms which can slow the company down. The pros are that VCs come with money, capacity to follow their investment and access to a network that can certainly help the business grow. A strategic investor offers these benefits as well. We had the opportunity to fund through private investment in the past so we took that road. For this round using our existing investors, leveraging our customers and the crowd’s community made a lot of sense for us and Crowdcube provided a platform to support that. However, we seek to continue to finance the company later next year. At this stage it’s certainly possible an institution will come onboard. Either way the VC or no VC route is a good internal debate for a start-up to have – overall it’s great companies have choice as there are increasingly more ways for a company to raise funds to facilitate growth. But whatever road you go down there are challenges and it’s hard work.
We looked at the various platforms in the UK and spoke to lots of other companies who had done this type of raise before. Crowdcube stood out as the leader in the market as they had completed more raises over £1m than any other platform in the UK. So we felt they had the most experience with raises similar to ours and therefore would be in a good position to help us achieve our funding target.
Do you see any difference for raising capital in Europe vs the US?
Yes, there are differences. From an equity Crowdfunding perspective, the UK and Europe have been much more growth oriented compared to the US, and been quite innovative in regards to their regulations. This has made Crowdfunding a viable option for companies to raise meaningful amounts of equity. The equity-based (non-real estate) Crowdfunding market grew to £245m in 2015 (out of a total of £2.7bn crowdfunding market including lending), and companies can raise up to €5m without a prospectus. In the US, equity Crowdfunding is restricted to a $1m cap with much more stringent conditions. So this is definitely one area where the UK and Europe are leading over the US. From the perspective of institutions, European investors tend to take a shorter term view on their investments while in the US they are more patient to support innovation, more open to funding growth for extended periods of time, and therefore they seem to take a longer term view in regards to their investment cycles.
How will you use the money you’ve raised?
We’ll be using the money in three areas:
To continue to supercharge our growth in the UK
To begin the process to internationalise the company and move into European markets
To continue to invest in the product and further develop it around our users’ needs
What kind of opportunities make the fintech space so attractive?
Over the last few decades the cost of producing things has gone down dramatically in industries like transport, communications and consumer electronics. But this is not the case in service areas like financial services, education, and health services. The combination of artificial intelligence and big data is now making it possible to look at the value chains of these industries and disrupt some of the tasks that were performed by intermediaries by doing them a few orders of magnitude faster and better, with minimal chance of fatal mistakes occurring. This has the potential to dramatically decrease costs and foster great leaps of innovation in these areas.