2015 in review:
How investment crowdfunding has forever disrupted the start-up funding landscape
2015 has been a great year for Crowdcube and the crowdfunding industry as a whole. Crowdcube hit a couple of impressive milestones: over £100 million invested via the platform, over 300 funded businesses & over 200,000 investors joined the platform. We also saw an increasing number of industry incumbents (angel syndicates, venture capitalists and even the government) invest alongside the crowd. This is in no doubt testament to the great businesses that have turned to crowdfunding for their capital needs and would have been unimaginable four years ago.
This year, Crowdcube effectively proved the equity crowdfunding model with its first two exits:
- E-car club who raised £100,000 late 2013, sold to Europcar in July 2015
- Camden Town Brewery who raised £2.7 million in April this year sold to AB InBev just a couple of weeks ago.
2015 saw a real increase in professional investors coming to the platform with the first single £1 million investment in Sugru, patented mouldable glue, and the likes of DN Capital, Index Ventures, Forward Partners, Seedcamp, Passion Capital, Episode 1 (the list goes on…) all co-investing alongside the crowd.
The sceptics have become the most avid advocates, the passive have become supporters and the outright critics have gone relatively quiet (apart from a few who still managed to write the most unbalanced and negative commentary in the industry). Compare a Financial Times article earlier this year to more recent ones and you will see a much more balanced account. Other media coverage has been increasingly positive. City A.M. even has a weekly column on crowdfunding and it’s all pretty balanced.
This change in tone is partially due to the fact that platforms have been constantly improving the way they work. Crowdcube, for instance, has taken a much more hands-on approach to valuations (although this is still much more of an art than a science, and by definition will always be a subject that investors love to debate), has significantly increased the quality threshold (with approximately 90% of applications being turned away) and has increased the amount of valuable and relevant information provided to investors.
There is still much progress to be made and this is to be expected for such a nascent industry (recall that equity crowdfunding was only born in 2011). The industry needs to work more on how to be fully transparent, accessible & open. There needs to be an increase in investor education. This will also happen organically, over time. Indeed, some of the recent failures (as well as successes) will surely give people a better appreciation of the risks and returns they are likely to make and direct them to make more informed investment decisions.
In 2015, rewards-based crowdfunding platforms such as Kickstarter have come under severe scrutiny with large ‘success stories’ such as nano-drone Zano (raising £2 million) & Coolest Cooler (raising $13 million) going bankrupt or simply failing to deliver. This has in certain respects awakened people to that fact that these are risky projects they are backing, not simply product ‘pre-orders’. Crowdcube and other equity crowdfunding platforms have had their share of perhaps slightly less-prominent failures; Syndicate Room showed leadership by openly addressing the reasons why its first failure, Soshi Games, did so. We need expect more of these as the industry matures and talk about them openly as they arise.
However Altfi Data’s latest report is promising. They found that across the top five equity crowdfunding platforms, 80% of companies having crowdfunded between 2011 and 2013 are still trading. Out of all companies having crowdfunded in 2013 (the first cohort being statistically significant) 22% have gone onto to raise more funds at a higher valuation or provided an exit (and this is only from publicly available data, the reality possibly being brighter). Easyproperty is a great example of this, having recently secured a £25 million investment round after their 2014 crowdfunding campaign at a significantly increased valuation. Although the Alt-fi statistics are to be taken with a pinch of salt, and subsequent reports are likely to paint a more accurate picture, they are relatively promising when compared with industry averages.
What then for 2016?
- Most likely an increased market share of private equity deals with a focus on larger and later stage deals. You’ll be likely to see more Series A/B deals — investment rounds led by institutional investors usually ranging between £2 and £20 million — having a crowdfunding element to their raise as well as additional IPOs (Coinsilium being the first).
- Improved information & increased transparency from platforms to help investors make better investment decisions.
- An increase in exchange between experienced, sophisticated investors and ‘retail investors’, providing a more democratic, collaborative and accessible playing field and bringing an age-old industry into the 21st century.
‘Potentially one most disruptive models of modern finance’, Equity Crowdfunding as hailed by Goldman Sachs in their 2015 “Future of Finance” report, has truly established itself in 2015.
I can’t wait to see what 2016 holds in store.