With every Facebook redesign comes the cries of users that believe that they have a say in how the company should operate. The problem is that users don’t have a legally-binding say in how a company works. It’s a misguided belief, but a big question is what would happen if it became the norm for companies to allow users to purchase shares in the companies that provide the products they use.
That’s what Escape the City, a corporate-focused networking startup from London, is going to find out. Today, the company announced that it has raised £500,000 ($770,000) from its users. The round was oversubscribed so Escape the City extended the round by another £100,000, bringing the total round to £600,000 ($925,000). This has given the new shareholders ownership of 24 percent of the company.
Escape the City started as a simple newsletter and blog in 2009, focusing on the founders desire to leave the corporate world and do something more with their lives. Founders Dom Jackson and Rob Symington worked for what Rob describe as “a non-descript company”. The two began to vent on their newsletter and blog about wanting to leave the corporate world for a more adventurous life. Thus, Escape the City.
As the newsletter grew in popularity, the duo realized it was a real business that would help them leave their jobs. So in late 2009, they started Escape the City. The idea evolved from a basic newsletter into a networking startup for people who want to leave their corporate jobs. Now, the startup connects people feeling trapped by the rat race with startups or non-traditional organizations.
Escape the City has grown organically with no outside backing to 70,000 users. Roughly half of them visit the site each month. So far, 1,500 people have found new jobs through the service, with over 4,000 job listings posted so far. The potential is much greater, though, when you think about how many people are unsatisfied with their jobs and want to do something more adventurous.
The team saw that the concept was one that could grow at a reasonable pace organically, making money from charging organizations to list jobs on the job board of the site. However, the team wanted to take it to the next level with more features. To do this, they needed to raise a new round of funding. The team pitched VCs in London for a £500,000 round of funding, but realized a few months into the process that they could crowdfund the money.
The team went after VCs and crowdfunding in parallel, but finally reached a decision in March, when one institutional investor offered to invest the £500,000. At the same time, the company was asking users if they wanted to invest, and the answer was a resounding yes. Wanting the company to be entirely community-based, the team decided to pass on the institutional investor and look for funding via the crowdfunding service Crowdcube.
The demand from users was so great, that the company increased its original offer from £500,000 to £600,000. The graph below shows how quickly the company was able to raise the money from its userbase.
The crowdfunding model does carry some big questions, though. For example, one issue with it is if the shareholders will have a voice in how the company operates. Will there be hundreds of shareholders that now have voting options? Will there be representatives on the board?
Escape the City will keep control of the company by creating two classes of shares, with crowdfunders not having the right to vote. That’s not out of a desire to block shareholders from working with the company, according to cofounder Rob Symington, but because Escape the City isn’t sure how to proceed.
The company is floating a few options, including an investor portal to share company information with the investors, a possible voting mechanism for the shareholders to elect a representative, and a sneak-preview of the future plans for the company. Escape the City doesn’t have to do these things this, they’re doing it to stay in favor of their shareholders.
In the future, Escape the City is open to continuing with the crowdfunding model, Symington says. Startups have raised similar amounts of money, but it isn’t clear if the crowdfunding plan can be extended to a Series A round of funding, or if the crowdfunding market is large enough to support a larger round.
Another issue for the crowdfunding model is how well it will work for other startups. Escape the city had 70,000 users when it decided to raise capital. For earlier stage startups, it will be more difficult to convince people to invest.
Those are issues for future. As of today, it’s clear there are immediate and tangible benefits to the crowdfunding model. If you’re Escape the City, £600,000 worth of tangible benefits, to be exact.
[Image by Post-Software]