Strength in numbers

Written by: Imogen Rowland Posted: 14/09/2020

BL69 crowd illoEquity crowdfunding has made becoming a beneficial shareholder easier – and more democratic – than ever. But does that mean it’s a worthwhile alternative investment? We asked four people from across the sector to share their insights

• The platform founder: Luke Lang, Chief Marketing Officer and Co-Founder, Crowdcube

Like many of the businesses it now helps fund, equity crowdfunding was born as a solution to a problem. 

“After the 2008 financial crash, start-ups were finding it acutely difficult to secure funding from more traditional avenues, such as venture capital and angel investors,” explains Luke Lang, Co-Founder of equity crowdfunding platform Crowdcube, which he set up with business partner Darren Westlake in 2011. 

BL69_crowd_LukeLang“We both had a passion for entrepreneurship and around that time a new raft of businesses was really striving to make a difference and disrupt existing industries.

"So we had this idea: ‘What if we could enable ordinary people to support the companies they really believed in by offering them the opportunity to buy a stake in those businesses alongside traditional high-net-worth and professional investors?’”

The advantages, they believed, were many. “Not only would start-up businesses get access to the funds they needed to grow, but they would do so by building their community and engaging with their customers. Shareholders would not only be more loyal, they would also become powerful brand advocates,” says Lang.

Their hunch proved correct. Nine years on, Crowdcube has helped fund more than 1,000 campaigns, 168 of which have raised more than £1m. 

Among them are fintech unicorns Monzo and Revolut, both challenger banks valued as multibillion-dollar businesses, and UK craft brewery Brewdog, which is now worth around £1.5bn. 

These success stories also show impressive returns for equity holders – and while the majority of those are on paper, there have also been a number of notable exits or returns. 

“Some £42m has been returned to investors over the years from exits, secondary share sales and bond repayments – some receiving a 30-times return on their investment,” says Lang.

Although the pandemic has inevitably had an impact on Crowdcube’s growth in 2020, business has not ground to a halt. 

“We’ve been buoyed by the courage and determination of the entrepreneurs we work with,” Lang adds. “Chip, a fintech app that helps people save money, raised £2.5m in April, despite coinciding with the height of the crisis.” 

According to Lang, these successes exemplify the business case for equity crowdfunding. “Raising capital is always important. But increasingly, fostering your relationship with your core group of customers and brand advocates is really powerful, because they’ll rally behind you in times of crisis,” he says. 

“And the favour is returned – they feel that your business is a safer investment, that there’s that extra level of accountability because your investors are also your customers, family and friends.”

BL69_crowd_Etienne Paresys• The market analyst: Etienne Paresys, Managing Director and Co-Founder, Equity Crowd Expert

As in most new business markets, the truth about the potential for equity crowdfunding is in the data.

However, until 2019 there was little to come by. That’s what motivated Etienne Paresys and business partner Nick Arnott to launch Equity Crowd Expert, which helps investors track the crowdfunding market and monitor a portfolio of investments, including through daily news and filing updates. 

“We met when I was Head of Data Content and Quality at Preqin, the alternative assets information authority that Nick co-founded,” explains Paresys. 

“We’d both been intrigued by equity crowdfunding’s potential as an alternative investment since the launch of Seedrs and Crowdcube [the UK’s two dominant platforms, which between them account for 95% of the market], but because it deals with private businesses, there was very little in the way of tangible performance data. 

“Equity Crowd Expert was born out of a desire to understand more about how the companies involved were performing – the successes and failures – and to give investors a means to track their portfolio of investments.”

The 2020 data Paresys and his team have gathered so far shows that, during the global pandemic, the number of deals closed dropped by 15% in Q2 compared with the previous five quarters. 

However, the number of investors actually went up by almost 10,000 since Q4 2019 – suggesting there’s a growing appetite for this type of investment. 

“The 86 successful campaigns in Q2 raised £54.1m between them, most of them far exceeding their original targets,” explains Paresys. 

While those businesses included wellness food brands and online health and fitness programmes, tellingly, the biggest was Freetrade, a free stock investing app, which attracted the highest number of backers – 5,989 – and capital hitting £6.7m, 695% of its original target. 

Paresys is, however, a realist. “Many investors are attracted to crowdfunding campaigns thanks to the EIS [Enterprise Investment Scheme] and SEIS [Seed Enterprise Investment Scheme] tax incentives their investments offer, and targets are set low to ensure most campaigns easily exceed them.” 

He adds: “It’s worth remembering that a lot of crowdfunding businesses go on to collapse – it’s quite an early-stage investment. But, alongside the smoke and mirrors, there are investors who are genuinely excited about the products and projects that these businesses are creating. It is this – the crowd of followers these campaigns assemble – that could prove equity crowdfunding’s best asset.”

BL69_crowd_EdProw• The network pioneer: Ed Prow, Co-Founder, Tekex, and Managing Director, Potting Shed

In business, a problem-solving attitude is key, and that’s what led Ed Prow to develop Tekex, a network designed to bring together entrepreneurs, investors and like-minded business people from across the Channel Islands. 

“We had been seeking funding for a business our firm was incubating and quickly realised that the islands weren’t a particularly open or abundant environment when it came to fundraising for enterprises,” explains Prow, who is also MD of Jersey and Guernsey-based design and digital firm Potting Shed. 

“At the same time, through my day-to-day role I was meeting with start-ups and scale-up businesses that needed funding to take them to the next level, as well as private investors who were interested in diversifying their portfolios.” 

In setting up Tekex, Prow aimed to boost entrepreneurial spirit in the Channel Islands’ digital sphere by making connections between these groups via an ongoing series of events and webinars. 

Taking place every few months, the events allow local business owners, thought-leaders in the tech sphere and investors to present their ideas and share opportunities to collaborate.

“Because of the complexities of regulating a crowdfunding platform, none yet exists in the Channel Islands, and start-ups from the islands are often ineligible to fundraise through UK-based platforms that will only accept applications from UK or EU-incorporated companies,” explains Prow. 

“While we hope that those regulations will evolve in the future, in the meantime we’re working on creating a more formal incubator for local start-ups and fostering a more supportive ecosystem. 

“The Channel Islands are world leaders in other areas of business and finance – I can’t see any reason why, in time, that might not also be true for equity crowdfunding.”

BL69_crowd_Kike Oniwinde• The entrepreneur: Kike Oniwinde, Founder and CEO, BYP Network

For Kike Oniwinde, equity crowdfunding isn’t just about raising capital, it’s also a vehicle for education and social change.

Oniwinde was inspired to start BYP Network – a platform that empowers black professionals around the world to connect with each other and global corporations – when she found she was consistently “the only black person in the room, whether that was on an internship at an investment bank or an interview for a business role”. 

Three years after launching, BYP Network works with corporations including Facebook, Accenture and Netflix, boasts 40,000 members across 65 countries, and has led to Oniwinde being named on Forbes’ 30 Under 30 list. 

She previously funded growth through start-up competitions including The F Factor and the Sky Women in Tech Scholarship, which led to a pre-seed round of £150,000 in January 2019. 

However, when it came to her next funding drive, Oniwinde wanted to try equity crowdfunding. Why?

“I wanted there to be a way for my community to buy into the business. I was seeing a lot of start-ups turning to donation-based crowdfunding – very few people realised that, for as little as £10, you could become a beneficial shareholder. 

“I wanted that buy-in, especially because BYP Network is all about community. It felt like the community should own it, too.”

Having originally planned to launch a campaign in March, Oniwinde’s plans were put on hold when Covid-19 hit.

However, when events in the US brought about a new momentum in the Black Lives Matter movement, and a long-overdue focus on black businesses – from consumers and corporates – she decided it was time to act. 

In the space of just two weeks, a BYP Network campaign went live on Seedrs. Five days and 711 investors later, it had already exceeded its target.

For Oniwinde, the success and prominence of the campaign was especially important because her industry is still woefully lacking in diversity, she says. 

“There are very few funded black founders and, in an industry that’s fuelling innovation for the future, we’re being left behind as a race. 

“So the campaign was held both to raise funds and awareness, but also to empower people who didn’t know they could be investors.”

One advantage Oniwinde didn’t originally foresee was the added value that working with an established crowdfunding platform like Seedrs would offer. 

“A big part of my decision to go with Seedrs for the campaign was its proactive attitude. The people there instantly saw BYP Network as a prospective business partner,” she explains. 

“So, alongside their expertise and their business acumen for the campaign, they also proposed an ongoing collaboration between BYP Network members who have promising start-ups. That’s exactly why equity crowdfunding is so exciting: in its community lies its potential.” 

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