Since it formed in 2012, property peer-to-peer lending firm The House Crowd has helped raise £74 million for property projects across the UK. Fresh off the back of a million pound investment in his company, CEO and co-founder Frazer Fearnhead talks crowdfunding, tech infrastructure and how the company plans to double its revenue next year.
Tell us a bit more about the company.
The House Crowd was founded in 2012 as the world’s first property crowdfunding platform. We were driven by a common desire to help people build a stable future for themselves through secured investments in UK property. We provide our investors with property opportunities that deliver predictable, generous and consistent returns – and, in turn, help them save for a comfortable retirement, provide passive income, or for whatever other reason they are investing.
We started as an equity property crowdfunding platform, but also now have full direct authorisation from the FCA to offer peer-to-peer lending products, which are secured against the underlying value of the borrower’s property. In addition, we have our own development arm to facilitate the construction of much needed new housing – House Crowd Developments. We also recently introduced our own Innovative Finance ISA (IFISA) through which people can invest and earn a fixed 7 per cent return tax free.
How much initial investment did the company need to start and how did you use it?
In 2012, The House Crowd received £80,000 of initial investment – based on a valuation of £300,000 – which came primarily from clients of my old property investment consultancy. These were clients for whom we had already sourced investment property, and they could see the potential of the idea. We spent this money on building our website, creating the company branding, and running marketing and PR campaigns. At this early stage, getting our brand exposure was essential to maximise the benefits of first-to-market advantage.
The first property we successfully crowdfunded was a small £50,000 house in Salford, which was funded over the course of a month. To put this into perspective – and to illustrate the trajectory of the company’s growth – in April 2018 we raised £1.3 million in single a day for one of our housing projects.
How did you get the latest round of investment off the ground?
The latest round raised over the course of 2015-2016 totalled about £1 million. We were eager to secure this round as some of our competitors were getting large amounts of VC funding. In addition, we had reached a point when it was time to upgrade our technology infrastructure to enable us to scale up quicker. Hiring for future growth also became particularly important at this stage. During this period, we employed a CTO, CFO, several new members to the marketing team and several other important staff members.
What was involved in the investment process and what do scale-up companies need to be aware of to ensure an efficient fundraise?
We were in a unique position when it came to raising funds, since we already had our crowdfunding platform in place. As a result, we were able to raise money very quickly from our existing client base and network of contacts. We talked to various VCs but decided we didn’t want to lose control over our company by taking the private equity route. We also looked at various other investment options, including working with Crowdcube, a company that specialises in crowdfunding start-ups.
Ultimately, we were successful in raising the required funds in about two weeks. In that sense, we were in somewhat of a fortunate position – but I would encourage aspiring businesses to consider all their potential funding options before coming to a decision. The closer you are to a working product or solution the better, as it gives investors something palpable to invest in. If they can see how it works, it increases confidence in your proposition. And I know it sounds like a cliché, but focus on building your network well in advance of raising money. The more people you know, the greater chance you have of securing investment.
What will the money be used for?
At this stage, we will use the money to continue investing in the technology infrastructure that enables us to scale our offering – rather than employ more staff. This is how we’ll maximise control over our cost base. We’re aiming to double revenue each year over the next three years, as we have in each of the previous three years.
What would you say to scale-up companies seeking to follow the same route of investment?
Crowdfunding is an excellent means of raising investment for a burgeoning business, especially if you have an idea that appeals to a wide group of prospective customers. It’s a great marketing opportunity, as it simultaneously introduces what you do to potential investors and potential customers. There are many great reasons to consider crowdfunding as an investment strategy. Most importantly, it means that you can retain greater control over your company than you would be able to if you chose to work with private investors. It’s also much more cost-effective and less time consuming that VC and angel investment. All you need is the support of a larger group of people who truly believe in your concept and want to help you realise it.
That being said, there are definitely advantages to working with VCs and angel investors as they may well have experience and contacts that you can tap into. However, if you already have that those, and just want the funding crowdfunding may be a better route for you.
Ultimately, your choice of investment will depend on what stage your business is at. In my experience, using crowdfunding in the early stages is an excellent way of raising money.