Good entrepreneurs see things that others don’t and develop solutions to problems that others merely accept as immutable. My co-founder, Darren Westlake, is one of those restless minds who had experienced first-hand the difficulties in gaining investment for his previous start-ups and saw a gap in the market for an alternative method of raising finance. He wanted to ‘democratise investment’ by making it more accessible, straightforward and rewarding for a broader cross-section of society, while allowing businesses to bypass traditional banks and angel networks.
Access to finance continues to be a major barrier to growth for more than one in five small companies, as reported by the FT. However, harnessing the power of the crowd to raise business finance is now a genuine option for many companies. Entrepreneurs, such as Alex Kammerling, founder of Kamm & Sons – which has successfully raised over £500,000 on Crowdcube across two rounds – didn’t even consider the banks for his second round because the 17% APR interest rates are too high for a small business like his. This is a common theme among businesses we speak to; banks have clearly tightened their lending criteria, which has resulted in strangling huge swathes of young companies from accessing the finance they need.
Crowdcube has been at the vanguard of innovation for business finance since its launch in 2011 and the internet has been central to its disruptive nature. Allowing people to review, query and invest in British businesses, online 24/7 seems obvious now, but at the time the angel industry was reluctant to embrace the internet, ecommerce and social media. It’s proven to be popular too, with nearly 50,000 investors registered at the time of writing, and more than £14.5 million successfully invested on Crowdcube.
Research firm Massolution forecasts that crowdfunding will continue to increase in 2013 growing to US$ 5.1 billion. The end of out-dated and ineffective financial institutions is long overdue and looks set to become mainstream rather than being referred to as ‘alternative’. Equity crowdfunding is already having a tangible positive impact on the UK economy and it’s set to play a more meaningful role as its popularity grows, e.g. the 76 businesses funded so far through Crowdcube forecast creating over 1,000 new jobs in their businesses over the next three years.
Before Crowdcube, angel investing was the luxury of the wealthy, often white middle-aged man, with plenty of time on his hands. This stereotype is backed up by the startling statistic that just 5% of angel investors are female, according to research from the UK Business Angel Association. Whereas, women make up 25% of the people who have invested through Crowdcube. By democratising investment, Crowdcube has removed many of the obstacles and stereotypes that existed and has allowed people from far more diverse backgrounds with more modest sums of money to browse and invest. Collaboration has always been central to how we like to work and this philosophy has permeated throughout the team. This ideology is extended to our customers and we ensure that we understand their needs through open dialogue, focus groups and regular customer research. Collaboration can play a vital role in creating breakthrough moments where different perspectives can collide to create a completely unique way of approaching a challenge or creating an opportunity. In today’s highly competitive markets, where businesses are under intense pressure to strive for greater efficiency or increased revenue, collaboration can be a useful method to emancipate businesses to deliver business benefits.
The overwhelming majority of investment comes from UK investors. However, we’re an ambitious bunch at Crowdcube and we’re expanding fast with operations starting in Brazil, Dubai, Poland and Sweden. Our aim is to have a global investment platform that facilitates cross-border investments.
British people clearly have an appetite for backing British businesses and we’re immensely proud to have helped companies like East End Manufacturing, who opened the first garment factory in the East End of London for many years, and have already expanded into a larger factory. Crowdfunding provides a vital boost to companies such as Righteous’ salad dressings, Wild Trail’s healthy wholegrain snacks, Marine & Auto Security Solutions’ anti-piracy device for shipping and Cell Guidance Systems’ products to help stem cell scientists fight devastating diseases. All rely on UK manufacturing to create their products.
Crowdfunding undoubtedly delivers benefits beyond cash. Companies typically have 40 to 60 investors on board, but as with TV presenter Kevin McCloud, who recently raised nearly £2 million for his housing company on Crowdcube, it can be many more, with over 600 investors joining ‘Hab’s merry band of shareholders’. These stakeholders become brand ambassadors, advocates, customers and in many cases directors, non executive directors or mentors.
For smaller companies the combination of crowdfunding, crowdsourced expertise, the inevitable word of mouth buzz and the possible publicity is a powerful mix that should enhance their chances of success.