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Has crowdfunding reached a tipping point?

Equity, Investing, Risk | 17/06/2015 | Darren Westlake co-founder of Crowdcube

Has-crowdfunding-reached-a-tipping-point--
Darren Westlake co-founder of Crowdcube

Author: Darren Westlake co-founder of Crowdcube

There’s no denying that crowdfunding is growing faster than predicted. Darren Westlake, co-founder of Crowdcube, discusses how crowdfunding is reaching a tipping point as old and new finance options come together, and investors reach a new level of sophistication.

As a mainstream funding option, crowdfunding has been growing in popularity over the last few years – and not just among early and growth stage businesses. Crowdfunding is helping businesses right across the board, from start-ups looking to raise seed-stage investment to more established businesses raising growth capital.

As well as helping to reduce many of the barriers that these businesses face when it comes to raising finance, crowdfunding allows anyone to invest as little or as much as they like alongside professionals and VCs – effectively democratising what was once only accessible to an elite few. Whilst crowdfunding investments do come with a risk, as with any other investment, investors are able to research, review and hand-pick opportunities at their own leisure.

After four years of funding hundreds of businesses and issuing thousands of share certificates, the equity crowdfunding market is maturing. Worth an estimated £84m and growing at over 400%, according to Nesta’s last report, equity crowdfunding is growing not just in size, but also in stature and confidence.

We are starting to see it become a mainstream funding option, not the alternative funding route that it has always been billed as. This has been partly due to the diverse range of businesses that are now turning to crowdfunding. Tech and food & drink have always been popular sectors, but investors are now interested in a variety of investments, from the highly innovative such as Sugru – the world’s first mouldable glue which has already raised £1.6m from 1807 investors – to those with a social, economic or environmental impact like Pavegen, the innovative flooring brand harnessing energy from footsteps. Crowdfunding is a viable funding option for a broad range of businesses.

An interesting development has been that not only are bigger businesses turning to crowdfunding, but also that seasoned and established business people and serial entrepreneurs are turning to crowdfunding. When you start to see businesses like VC-backed Adzuna, which is led by former the execs of eBay, Zoopla and Gumtree, use crowdfunding, you know the sector has reached a tipping point.

Poundland’s Steve Smith has now completed two funding rounds on Crowdcube totaling £1.7m for his latest venture, Estates Direct, and the founder of ASOS.com, Oliver Tezcan, raised £755k for The Idleman, an online men’s fashion retailer. We have also seen easyJet founder Sir Stelios turn to the crowd to fund easyGroup’s latest venture easyPROPERTY raising £1.3m.

This is a significant development for a market that was outside of the mainstream of investment and is less than five years old.

Funding amounts are also getting bigger, which is largely what is helping to attract big-name hitters like easyGroup’s Stelios and Hugh Fearnley-Whittingstall from the acclaimed River Cottage. Innovative tech start-up, Just-Park raised a record-breaking £3.7m this year on Crowdcube. While this is a fantastic amount, what’s interesting is that 2,900 of our investors joined Just-Park’s existing backers, BMW iVentures, the venture capital arm of BMW, and Index Ventures.

As larger companies like Just-Park look to the crowd to support them, while still seeking funding from more traditional sources like angel, venture or institutional investors, there’s a real sense that the old and the new in investment circles are starting to come together in a new era of co-operation and collaboration.

It’s not just the businesses looking for investment through crowdfunding that are evolving and becoming more sophisticated, so are the investors. Today, we have over 180,000 people registered on Crowdcube, who have invested more than £80m in 250 businesses.

This model provides all the benefits of angel investing, but makes the whole process more accessible, affordable and rewarding, without the middleman. Plus, there are no costs for investors, either upfront or when the company exits.

Investors are much more savvy today. They are not only investing more, but they also know there’s the possibility of healthy returns if they build a diversified portfolio of investments to spread the risk and increase their chances of backing a winner. It’s important they do an appropriate level of their own due diligence into the businesses they choose to invest of course and the discussion on forums around individual pitches is often incredibly lively. Investors tell us they really enjoy the process of handpicking their investments and discussing what they are doing with similar-minded folk.

The popularity of investments in growth businesses also demonstrates a level of sophistication from investors who are looking for businesses that have gained traction, either through generating sales, contract wins or partnership agreements. So while there are risks, investing in early stage and more established businesses offers investors the best of both worlds – the ability to support great businesses still in their infancy, with the reassurance of backing a venture with a proven proposition.

Crowdfunding has disrupted the investment sector, empowering both businesses and investors over the past few years. As it reaches a crucial tipping point, I’m confident the sector will continue to grow and challenge traditional investment models, as well as our way of thinking about investment.

 

  • Rob Murray Brown

    Shouldnt this article be heavily prefixed, in bold, with ADVERTORIAL. Westlake is just giving us a list of his current pitches – why – because not many of them are doing very well. We have yet to see a single penny of investors money returned – with interest or not. Westlake talks of diversified investing and backing a winner – where is this winner out of the 250 companies? Forget about winners, where are the ones doing well? Westlake talks of the lively forum discussions – he doesnt mention that if you post something that the platform feels will harm the pitch, even if its true, you will be banned from the site. Democratic is as Democratic does. Many of the Crowdcube funded businesses have gone bust and 99% of the rest have failed to get anywhere near to the projections Crowdcube promote to help sell the equity. Most will close within 3-5 years. Take a look at the Great British Sauce Co – predicting sales (currently at £120k pa) to travel to over £1m in two years and still they make no money. They talk glibly of a 5 year exit and value the company today at £1.4m on a £120k t/o. Read http://fantasyequitycrowdfunding.blogspot.co.uk/ if you want the real story.

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