Crowdfunding: a new way to invest
Published on: 21 May 2014
Businesses seeking investment and backers looking to fund them can connect via equity crowdfunding platform Crowdcube.
Crowdcube, based at the University of Exeter Innovation Centre, raised in excess of £12million for companies in 2013, a 560 per cent increase on 2012 and a figure it is on course to double in 2014. More than 100 businesses have successfully raised funds since Crowdcube launched in 2011.
Equity crowdfunding is a way for businesses to raise money, in exchange for shares, from ‘the crowd’ – meaning large amounts of money can be built up through small investments from a number of people. The platform works by allowing those seeking funds to upload a pitch for keen investors to view via a website, which they can use to back businesses they like the look of.
Co-founder and Marketing Director Luke Lang explained how Crowdcube came about. He said: “The idea was born out of the frustration Darren [Westlake, Crowdcube CEO and Co-founder] found when raising finance. The idea of an entrepreneur having to go cap in hand to an angel investor seemed out of step with modern times.
“We also wanted to make sure the ability to invest in businesses wasn’t just the preserve of the rich and wealthy.”
The idea has benefited companies including Righteous Ltd, a salad dressings producer, who initially secured £75,000 via Crowdcube to launch a TV advert campaign. This proved so successful they received international interest, enabling them to secure a further £150,000 in a second round of funding. Righteous are now in more than 1,000 UK supermarkets and more than 500 in the US and Canada – which all means the investors are seeing the value of their shares grow.
Crowdcube’s success has helped people see equity crowdfunding as a mainstream route to finance. They recently funded Estates Direct, an online estate agency, whose founders include the people behind Poundland and Dating Direct – ‘high calibre, proven entrepreneurs’, according to Luke.
He added: “They view us as the way to raise finance – we’re no longer the second choice or last resort. They’re seeing the value of equity crowdfunding, beyond just the investment – it helps engagement with customers and can provide a real marketing bounce.”
Kevin McCloud, of Grand Designs fame, is another example – he raised almost £2million for his house building company HAB Housing using Crowdcube.
Kevin said: "Crowdcube have been an excellent bunch to work with through the funding process, aiding greatly in demystifying the peer-to-peer funding world."
International expansion is also a key aim for Crowdcube itself. Luke explained: “We’ve signed agreements in countries ranging from Brazil to Poland and New Zealand. They’ll be coming online this year, letting us help entrepreneurs and investors in other countries. It will also help cross-border investment – so for example investors in Spain could finance British businesses.”
Crowdcube’s success has been recognised by Beauhurst, a leading source of data on growing companies, who named them ‘most active seed-stage funder’ of 2013. Seed-stage is the first stage of investment in businesses.
The company is looking to expand further by working with universities, with ambitions to set up a platform to fund spin-out companies.
The platform is helping raise money for charitable purposes too. Crowdcube have partnered with the University of Oxford’s Mindfulness Centre, a leading provider of treatments for mental illness, to help them raise £500,000 to further their research. Luke said: “One in three people suffer from depression and the Mindfulness Centre do a lot of good work, so it was a cause we wanted to support – so we offered our platform to help them raise the money.”
Crowdcube’s home is the Exeter Innovation Centre, a hotbed of innovative businesses across a range of sectors. Luke feels working in the Centre has been ‘great for meeting new contacts’ – the Centre’s business support team have also co-hosted events with Crowdcube. The Centre offers a flexible range of office space – Crowdcube have moved four times within the building, ‘without the hassle’ that comes from moving to a new location.
The Innovation Centre is a SETsquared business acceleration centre. SETsquared is partnership between the Universities of Bath, Bristol, Exeter, Southampton and Surrey designed to support enterprise activity and new business creation.