He’s tackled Branson, Al-Fayed and Maxwell, and now he’s taking on the banks. ArchOver’s Brian Basham says crowdfunding is at a tipping point
As he strides into the IoD’s Pall Mall premises, iPad in pocket and wheelie suitcase in tow, Brian Basham looks every inch the sober executive who has been in the thick of British business for the past five decades – apart from one thing.
A black card pinned to his lapel bears the seditious slogan ‘RIP BANKS’ scrawled in punk typography. As rallying cries go, ‘RIP BANKS’ is certainly provocative. It is being used to promote Basham’s latest venture – a crowdfunding platform called ArchOver, which aims to extricate banks from the funding process by allowing companies to connect directly with lenders.
The campaign also befits Basham’s background. In the 1980s, he was a media-savvy crisis PR extraordinaire, with clients including British Airways (which led him to tussle with Virgin Atlantic’s Sir Richard Branson), Mohamed Al-Fayed and Robert Maxwell.
Furthermore, it underscores his belief in peer-to-peer funding. Crowdfunding – where entrepreneurs ask public donors to put cash into their ventures – is increasingly popular, facilitated by operators such as Kickstarter, Crowdcube and Seedrs (the latter raising an average of £1m each month for start-ups).
According to innovation charity Nesta, the UK alternative finance market – which includes crowdfunding – raised £939m in 2013. By 2017, it estimates crowdfunders could provide around £15bn per year. And Basham reckons platforms such as ArchOver – which has been buoyed by a £3m investment from the Hampden Group – could join the vanguard of a revolution in the way SMEs are financed.
A long-time champion of small business, he says: “Small is beautiful. I like small-company people – they’ve created something rather than just manipulated interest rates.” Here, he tells Director about his plans for ArchOver and his beef with the banks…
What convinced you crowdfunding is the future?
Some research by Dr Richard Swart [UC Berkeley]. Whereas 70 per cent of start-ups generally go bust, he found only 30 per cent of crowdfunded start-ups fail. If you believe that Swart is right, it makes it very plausible to fund them. Plus, being an old hack [Basham was also previously a Times and Telegraph journalist] I knew there’s always somebody who knows everything. If I wanted to do a piece on Patagonian crested-toads, I’d look for experts in the telephone directory. Now, as internet and social media have sprung up, any company can find these hidden experts.
Why do you think ArchOver is a unique proposition?
We make it easier for companies to borrow money. It’s a cousin of invoice discounting, but taking away the burden of discounting each invoice. We thought, ‘What don’t companies like?’ They don’t like insecurity, so let’s give them security [ArchOver borrowers and lenders are insured against default by Lloyd’s]. They don’t like handing over the relationship between them and their customers to somebody else so let’s get rid of that. And they don’t like personal guarantees either.
What kind of companies are you looking to invest in?
[Financially] sound companies which need capital to fund development and general operations that also have decent customers, so we can insure the invoices. We’re not dealing with ’10-quid-Charlies’. We start with a minimum loan of £5,000, and a minimum borrowing amount of £75,000.
With no personal guarantees, how can you reassure people?
We offer lenders a chance to receive five per cent on the total amount they lend, which is insured. When people come in, we run a check on them. We have KYC [know your customer] on lenders. If it all goes belly-up, lenders get paid by the insurance company.
What will be crucial to your success?
Our convenience. Companies won’t have to keep discounting invoices. We’re working with one firm who are getting screwed for 120 days [to access funding through a bank]. With ArchOver, you discount [the invoice], they [the lender] give you cash, you pay six per cent – all within 72 hours.
Is it about cutting out the middle-man?
Yes! Life has got easier as an entrepreneur. I once set up a sausage business with [fashion photographer] Norman Parkinson, called Porkinson Bangers. I got them onto Concorde and was in 79 Tesco stores. But because we were in the hands of the chain distributors, they – pardon the pun – skinned us and took all our money. We eventually sold the brand. I recently read about two Derbyshire brothers who sell several tonnes of sausages a month by cutting out the middle-man. ‘RIP Banks’ is about this middle-man too.
Have you upset anybody in the City with this campaign?
I hope so. Like most people, I’m pretty cross with the banks. Do you really believe SMEs shouldn’t apply for funding from banks? SMEs should explore all options. But banks are constrained by the consequences of their excesses. Because they’ve thrown so much money away, Basel III [the enhanced regulatory framework] has come in and squeezed balance sheets. I wouldn’t say don’t borrow from banks, but do you want to give a personal guarantee? They always demand one. I once gave a guarantee on a property. Five years later, a writ dropped through my letterbox for £1.5m! [However] I’ve got a lot of time for Santander, who are doing the best job in banking for SMEs.
If banks step up their lending to SMEs, is this a problem for ArchOver?
No! Banks are likely to become more constrained, not less. They’re not building their balance sheets and are still paying out vast sums of money to people who frankly don’t deserve it. The reason why these people earn this money is not because they’re talented. It’s because you and I guarantee their balance sheet.
So you don’t envisage banks being the dominant lenders of the future?
I envisage exactly the opposite. And it’s not just me. Jamie Dimon [JPMorgan Chase chief executive] spoke at a banking conference, where he said tech firms like Google and Amazon will be the main competitors banks will face in the future. They want to eat our lunch, and that’s what will happen. I firmly believe they, plus start-ups like ours, will go directly to people and lend to companies. A recent Viacom survey found that millennials, who have a purchasing power of $1.3trn (£772bn), detest banks with a vengeance. Over half believe they won’t be dealing with banks within five years.
Where do you see the lending landscape going?
Andy Haldane, the Bank of England’s chief economist, said in a recent speech, that where music and publishing have shown the way, finance will follow… If you look at the big companies which bestrode the music world – the colossi that were HMV and EMI – where are they today? From moguls to mice! Why aren’t they successful? Because artists didn’t like working with them, then Spotify and file-sharing came in to destroy the industry. Now artists are back on the road, doing everything themselves.
What else are you predicting?
Ordinary people are proving to be extremely prudent. The biggest [crowdfunding] company is Funding Circle. The average lender on Funding Circle lends just £157 to each of 67 companies, so people are understanding that fundamental tenet of investment: spread. Vast sums of money are out there – it’s getting away from the banks that have cost us so much.
So you see yourselves as part of a revolution?
ArchOver is part of a groundswell movement which is at tipping point. We’ve gone in a circle from 1929 [Wall Street Crash] to 2008. But unlike the 1930s, we’ve now got this golden mechanism which is we’re no longer in the hands of the banks. Companies can connect with ordinary people and those people, as a crowd, can conduct due diligence and be confident in the numbers they analyse. Suddenly, you’re not reliant upon a small number of people who might be crooked, plus you’ve got widespread scrutiny and hidden experts. It’s an unstoppable river of change.