Crowdcube: Taking the equity crowdfunding model and going global

To coincide with moves by Crowdcube and Seedrs into new worldwide markets, GrowthBusiness met with co-founders of the platforms through a two-part special to find out how equity crowdfunding in the UK has grown, and just what will be involved in selling it to the world.

As the rise of crowdfunding in the UK has continued to disrupt the way people, projects and businesses access capital, Seedrs and Crowdcube have led the way when it comes to the equity offering.

The two platforms provide a way for businesses to place a pitch online, and then secure start-up/expansion capital from a range of angel investors.

Having grown their offering in Britain, the founders of Crowdcube and Seedrs are now taking their services beyond the domestic market as part of their personal efforts to grow their own businesses.

We’ve sat down with Seedrs co-founder Carlos Silva and Crowdcube co-founder Luke Lang to find out what their new plans involve.

As part of this section to our two-part special, Lang has revealed to GrowthBusiness the motivation behind taking its offering to Italy, New Zealand and Spain as well as the joint venture approach it is adopting.

With some 50,000 investors in the UK, the expansion is being funded with £1.5 million of growth capital raised in just three days earlier this year using the Crowdcube platform.

Luke Lang

(1) How has the equity crowdfunding market changed since Crowdcube started out?

Equity crowdfunding has grown from an idea into a genuine option for start-up, early-stage and even growth businesses. There was a lot of scepticism when we launched Crowdcube in 2011 but also a tremendous amount of support and optimism.

From the very beginning we knew that we were doing something special, something game-changing, but we have been overwhelmed by the response. Entrepreneurs love what we do for obvious reasons, but more encouraging is the response from the British public who have shown a real appetite for backing British start-ups and early-stage businesses.

Nowadays, people’s awareness and understanding of crowdfunding has greatly increased, which makes my life a lot easier. Like all good ideas, Crowdcube has been copied, which is great as it offers people choice and helps build a credible marketplace. We’re not ones to rest on our laurels and we are determined to hammer home our dominant position.

(2) How has progress been in getting companies and investors signed up?

We recently funded our 50th business of this year, whilst last week we also welcomed our 50,000th registered investor to the Crowdcube family. Since launching in 2011, we have raised £16 million for UK businesses, which already makes Crowdcube one of the biggest and most successful angel networks in Europe. So far in 2013 we have raised £11.7 million, seven times our nearest rival, which represents an increase of more than 500 per cent when compared to 2012, which is fantastic.

We now routinely process in excess of 1,000 investments per month, and repeat investors regularly represent 60 per cent of all investments each month, which is really encouraging as it demonstrates a real appetite for Crowdcube investors to back multiple businesses listed on Crowdcube and shows a level of sophistication, with investors wisely building portfolios to spread risk.

(3) What have the challenges been so far?

Our big challenge has always been awareness. Being innovative and first to market does have its drawbacks; it means that you need to create and educate a market, starting with innovators and early adopters before you begin to gain more mass appeal and awareness. This can be a very expensive process. This diffusion of innovation is a challenge for all innovative companies, even Apple and Dyson, for example.

Successfully telling our story through PR has been critical to our success so far.

(4) How have the discussions on regulation had an impact?

The public consultation paper by the Financial Conduct Authority (FCA) is a tremendous step forward for the industry; the regulator has grasped the value that equity crowdfunding brings to both businesses and investors and has responded and adjusted its policy accordingly.

Such a bold and positive move by the regulator for such a nascent industry underlines how important it is. It will give the industry the stability it has craved, which will help build investor and market confidence, and provide a firm foundation for the industry to flourish over the coming years.

We’re delighted that many of the measures proposed by the FCA are already in line with how Crowdcube operates today and should ensure a smooth transition.

(5) What kind of trends have you seen emerge regarding successful pitches?

The British public has a real taste for investing in food and drink companies – more than £4.5 million has been raised through Crowdcube for businesses in these sectors, around a third of the total investment raised since we launched in 2011. Technology is also proving a popular category.

In terms of who’s investing, many of our 5,000 investors are younger and from more diverse backgrounds than your stereotypical white male angel. For instance, 25 per cent of the people who have invested through Crowdcube are female, which is in stark contrast to research from the UK Business Angel Association that just five per cent of ‘traditional’ angel investors are female.

By democratising investment, equity crowdfunding removes many of the barriers and stereotypes that exist in traditional angel investing. The average investment amount is a healthy, yet accessible, £2,800 on Crowdcube; many invest less, but a lot also put in more substantial amounts running into the tens, and even hundreds of thousands, of pounds.

Angel networks, or syndicates, which typically organise face-to-face events as a means of communicating investment opportunities, seem totally outdated in the 21st century and the idea of walking into a sea of middle-aged men is intimidating and uninspiring for newcomers. Crowdcube changes that.

Find out more about Crowdcube:

(6) What made you decide now was the right time to move the offering into other countries?

We’ve been approached by people from across the globe wanting to partner with us, but we were determined to develop the UK market first. We are now established as clear market-leader in the UK and it puts us in a tremendously strong position to roll out our model internationally.

(7) What work has gone into creating an offering for an overseas market?

From our experience of setting up Crowdcube in the UK we know it is vital to have a strong presence at a local level. Darren [Westlake, co-founder] has been the envy of the office travelling to Rio de Janeiro, Dubai, Madrid and Milan to ensure we partner with the right people who understand the regulatory environment, and are immersed in the start-up and investment scene. It is not sufficient simply to build a website and hope that people come, life just isn’t that simple.

This is why joint venture partnerships are such an important aspect of our strategy. We have built a well-regarded brand, not just in the UK but abroad, a powerful technology platform and a wealth of knowledge and experience of equity crowdfunding that is second to none. However, this will count for nothing without the right people on the ground driving the business forward.

(8) How popular is equity crowdfunding in the countries you’re targeting?

Accessing finance for start-up and early-stage businesses is a global problem and not limited to the UK. While the UK has been at the vanguard of pioneering equity crowdfunding it is still in its early stages in most countries, including the US, which has got bogged down in regulation. We have identified clear demand from entrepreneurs in the countries we’re targeting and we’re tremendously excited by the opportunities.

We’ve been accepting investments from overseas investors in businesses on our UK site for some time now, including the countries that we’re targeting so there is a clear appetite for investing.

(9) Are serial angels in these areas seeing crowdfunding as a way of allocating capital?

If we take the UK as a benchmark, then it is clear that traditional angels are attracted to the new model as well as the next breed of angel investor. For the first time traditional angels can review and invest in investment opportunities online, 24 hours a day, seven days a week – this in itself is transformational but the vast scale of deal flow presented and the ability to spread their money around more readily with more modest sized investment amounts has been compelling.

We’re also seeing some serial investors moving money from one asset class and investing it via Crowdcube. They see equity crowdfunding as an effective way to access good quality, tax efficient deal flow. The investments may be long-term, but investors tell us it is a tremendously fulfilling process.

(10) What else can we expect from Crowdcube in the next year?

We want Crowdcube to be the ‘Google’ of equity finance and investment. Our next challenge now is to build on our early success and exposure to become a household name with investors and entrepreneurs alike.

To find out about Seedrs from co-founder Carlos Silva, click here.

Hunter Ruthven

Hunter was the Editor for GrowthBusiness.co.uk from 2012 to 2014, before moving on to Caspian Media Ltd to be Editor of Real Business. More by Hunter Ruthven