by Trevor Clawson
“Our first raise was for £75,000. It took four months to raise the money,” says Darren Westlake, co-founder of equity #crowdfunding business, Crowdcube. “This year JustPark raised £3.7m in a matter of weeks.”
Westlake is reflecting on the changing face of equity crowdfunding. When Crowdcube launched in the UK back in 2011 it was a novel concept.Those who kept a finger on the internet pulse were probably aware that rewards-based crowdfunding sites were helping inventors, small businesses and creatives raise cash, but here in the UK Crowdcube was the first platform that enabled individuals to invest small amounts in early stage businesses in return for shares. Investors could put up as little as £10.
But equity crowdfunding is no longer a novelty. According to figures published by innovation agency, Nesta, the UK crowdfunding industry successfully raised £84m in 2014 and the sector is growing at an annual rate of 410%.
And what we’re also seeing is an evolution in the #marketplace. Citing the £3.75m raised by JustPark and a total of £1.7m secured across two campaigns for Estates Direct, Westlake says larger sums are being raised. “If you go back to 2012, the average raise on Crowdcube was about £115,000,” he says. “Today the average is about £500,000.”
Speaking to me ahead of a presentation of the Wired Money conference in London, Westlake argues that equity crowdfunding is approaching a tipping point as it broadens its appeal to both investors and companies.
On the funding raising side of the equation, Westlake says that crowdfunding is attracting a broader range of business types. “We used to be very strong on attracting B-to-C companies, “ he says. “But now what we’re also seeing is more B-to-B companies coming on board.”
Meanwhile the investor base is widening out. “We are still getting investors from the “crowd,” he says of Crowdcube. “But we are also attracting angels, VCs, EIS (Enterprise Investment Scheme) funds and Seed Funds.”
Access To Quality
So why does an angel or a #fund manager come to a crowdfund platform when he or she could be sourcing deals through the usual channels. “It’s not the mechanism of crowdfunding that appeals,” says Westlake. “It’s the fact that they can get access to high quality companies.”
Potentially there is a virtuous circle here. As the companies pitching via crowdfund platforms grow more diverse and the overall quality rises, professional investors are attracted. That in turn attracts more companies, including businesses seeking to raise larger sums of money. And in some cases their fund raising is supported by hybrid investments involving both institutions and the ‘crowd.’
Of course, this raises a question. If investment through the bigger and more successful crowdfunding platforms becomes more professionalised will the original investors – the man or woman with £50 to spare – be driven away. Equally, will small companies be deterred by the presence of longer-established businesses seeking larger sums.
In the case of Crowdcube, the management team has given this prospect some thought. “What we want to so is offer a service to all classes of companies, “ says Westlake. “For instance, we have developed a sprint programme for companies raising a SEIS (Seed Enterprise Investment Round). There is a lot of due diligence to do on early stage businesses, but we aim to get companies live in 14 days with no administration fees.” And of course, there are other platforms, some aimed at smaller companies.
The Bigger Picture
Equity Crowdfunding sits in a larger “alternative #finance” marketplace, which also includes peer-to-peer lending and invoice trading and Westlake sees a bigger change taking place. “It now feasible that alternative finance could meet all the needs of a growing business from seed capital through to, growth finance and working capital.” he says.
There is, however, a barrier. The alternative finance market is fragmented. Taking advantage of invoice finance, equity finance,term borrowing and foreign exchange would mean going to at least three providers. In contrast, a bank still represents a one stop shop for a broad range of financial needs. As such, Westlake sees a role for aggregators providing a single point of a access. A next step in the market, perhaps.
Featured Image credit to dkinglaw.com