IPO, RTO, Crowdfunding, angels and VCs — a crowded funding marketplace!

qodoeview London market snapshot report, 2014. Available at http://www.qodeo.com/

During his #qodeo research project, conducted in association with #Cambridge University’s #Judge Business School late last year, our Cambridge MBA researcher Jos Seligman found that London’s VC community was unsure how to handle the advent of crowdfunding.

In Jos’s qodeoview London market snapshot report (at http://www.qodeo.com/), he cited that London has become a world centre for crowdfunding. The crowd tends to prefer more B2C, popular propositions, but deregulation of the emergent industry and the huge flow of funds into London as a tech and European hub have enabled a relative maturing of offerings. When I moderated a panel of #crowdfunders at the #AngelNews Great British Investor Summit (GBPIS) in the City in March, I was fascinated to hear about such breadth — ranging from Crowdcube (http://www.crowdcube.com)to which pretty much any member of the public can subscribe to at very low levels of financial commitment, to the impresssive Syndicate Room (http://www.syndicateroom.com), run by fellow Judge Business School MBA Gonçalo de Vasconcelos. Gonçalo’s focus has been to attract a cluster of savvy, sophisticated angel investors into an online club, so far raising £24m. His investors benefit from similar pricing and terms (‘pari passu’) to existing investors in a venture. What the cloud and CRM products have enabled is the ability to communicate and manage investors, relatively seamlessly, except for their dealing with HM Revenue, who still need paper forms for Enterprise Investment Scheme (EIS) compliance. #QVentures Director Lex Deak has launched a crowdfunding aggregator #Tendr.

The rise of crowdfunding question the traditional role of angel investors, but also confounds some VCs. My point at GBPIS is that at minimum, iys advent has got a range of businesses funded and moved the bar in terms of angel and entrepreneurial activity in markets like the UK. Whilst few exits have occurred and there is the concern of how to handle disappointed investors, who are dipping their toes into the market, it does expand the embrace of entrepreneurialism. Research undertaken for #qodeo by a Cambridge team a while back showed how there were c11m entrepreneurs (all stages and sizes) seeking funding venture type funding. So, there are probably now many times this number seeking VC/PE and also newer forms of alternate finance.

#qodeo research identified that VCs are worried that crowdfunding may only pick populist winners and not break through products. Further, it can inflate valuations, reduce information requirements for funding proposals and create very diffuse, messy share registers. So, does crowdfunding complement or compete with traditional VCs?

Another curious wrinkle for entrepreneurs has been other non VC forms of finance for relatively early stage businesses. Traditionally, IPOs were only considered, when a business is mature enough. In Australia, where there is a relative paucity of early stage funding, particularly in more remote markets, resources shell companies on the #ASX that face an uncertain future during #China’s downturn are reinventing themselves as tech companies, using backdoor listings or RTOs. Strangely, the nature of investor ‘spread’ required almost mimics crowdfunding, if on a public market, with more governance and disclosure required.

It remains to be seen how a wider range of funding options helps support the entrepreneurial community going forwards. #qodeo’s mission is to help entrepreneurs of all stages, VC & PE firms, LPs and Corporate Advisors navigate more efficiently through this space — and do better deals, sooner.