The State of crowdfunding in the UK

The crowdfunding market 

Crowdfunding has the potential to be the biggest revolution in finance of the 21st Century”.

Jimmy McLoughlin, Deputy Director of Policy, Institute of Directors

Crowdfunding is a growing part of the business funding landscape. In 2012 £350m was raised which grew to £2,337m in 2014 – an average growth of 410%. Average amounts raised in peer-to-business lending are £73k with an average of £199k for equity crowdfunding and £56k in invoice trading.

There have been suggestions that equity crowdfunding may be significantly riskier than business angel or venture capital finance, due to a “lack of adequate pre-investment screening and due diligence, weaker investment contracts and poorer post-investment support and monitoring”.

There have been two exits of crowdfunded companies. Mill Residential raised £2m on Syndicate Room and floated on AIM in 2014. Ecar Club raised £100k on Crowdcube from 63 investors whose crowd investors included business owners, serial investors and senior directors at global banks as well as everyday investors, in 2013 sold to Europcar this month.

The average age of those lending through P2B – under 35 6%, 62% 35-54 and 32% 55+. The average age of equity investors – under 35 26%, 48% 35-54 and 26% 55+. 38% identify themselves as sophisticated investors.

There have been some interesting developments over the last year

  • Equity crowdfunding amounted to 18% of total deals in 2014 (2.2% of total investments). But 32% of SEED deals in 2014 were crowdfunded.
  • Crowdfunding has overtaken angel networks which amounted to 9% of deals.
  • Increasing number venture stage deals – 17 in 2014 which was 11% total venture deals. Crowdcube will be partnering with Numis to support high growth business preparing for an IPO.
  • Crowdfunding platforms are raising serious money for their own growth including Seedrs, Growth funders, Crowd2Fund, Trillion Fund and Crowdcube (which raised £1.5m in three days). Neil Woodford is leading Seedrs £10m Series A round.
  • Institutions and incubators have raised capital to develop crowdfunding investment funds including Fuel Ventures, Pi Labs, Venrex, Webstart Bristol and Worth Capital.
  • Banks, local authorities and wealth platforms are lending through P2B platforms including Newcastle City Council and KLS Diversified Asset Management partnering with Funding Circle.
  • Aletrnative finance has support from the Government with consultation about P2P ISA and the UK Government has recently legislated that all large banks will have to direct unsuccessful loan applications towards alternative lenders.
  • Seedrs has recruited Andy Murray to raise its profile to provide advice on “the health, sport and wearable technology spaces”.
  • Mini-bonds (5 years profitability) doing very well. Five companies have successfully raised c. £8m from over 1,800 individual investors in mini-bonds issued through Crowdcube.
  • Other new products such as property bridging loans (Funding Knight), revenue loans (Crowd2Fund).
  • CB Insights found that 9.5% of the hardware projects had gone on to raise Venture Capital, receiving $321 million in total VC financing after their crowdfunding campaigns.

In a recent survey of businesses that have used crowdfunding – 94% cited speed, 57% cited simplicity and transparency. They also mention better and more personal service and different types of security. 33% felt they could not have raised the money elsewhere. 79% had approached a bank first – 22% got an offer

For those using invoice trading platforms 90% said profits had increased, 80% said turnover had increased and 60% employment had increased.

With equity crowdfunding 23% had received past funding from banks (41%), angels (41%), VCs (26%) and government grants (22%). Most found the process easy but areas of difficulty are 31% marketing, 28% developing a pitch and 29% had difficulty with valuation and how much equity to offer.

44% of SMEs are aware of crowdfunding but only 9% have used it

Through my work as an Associate Partner with BAFI and as a coach with GrowthAccelerator I can help you

  • find the right finance – different types of debt or equity
  • find the right platform
  • work with you on the business plan and financials to ensure reasonable valuation and equity offer
  • develop the pitch and campaign plan
  • help to find lead investors
  • develop a mini bond for £1m+

Sources

Big and small funders learning to play together. NESTA, July 2015

Equity Crowdfunding in the UK: Evidence from the Equity Tracker. British Business Bank/DEpt for Business Innovation and Skills. March 2014

How much venture capital are Kicjstarter and Indiegogo hardware projects raising. CB Insights, August 2014

Wilson and Testoni. Improving the Role of Equity Crowdfunding in Europe’s Capital Markets, Bruegel University, August 2014

Moving Mainstream. University Cambridge Feb 2105

Rise of Future Finance. NESTA Dec 2103

Understanding Alternative Finance. NESTA, Nov 2014

 

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