Crowdcube was the first investment crowdfunding platform to launch in the UK. Since 2011, the site has grown quite a bit having helped to finance hundreds of companies raising more than £165 million in the process. During this time, Crowdcube has tweaked and adjusted its process and platform to provide an ever-improving service. Along with this real-world experience comes wisdom. While there continue to be a host of naysayers and detractors regarding internet finance, Crowdcube recently took a moment to debunk some of these “crowdfunding myths” and they are worth repeating.
You will never get VC investment following a crowdfunding round
We hear this one a lot too. From bloated cap tables to questionable valuations. VCs will steer clear. The fact of the matter is a VC will act in an opportunistic manner and will go where they see value regardless of whether or not the company has raised money online. Crowdcube points to the many VCs that are investing directly via their platform. Certainly a positive sign. In fact, a growing number of VCs/Angels are using online investment platforms to fund early stage companies.
The Crowd is unsophisticated.
Can the great unwashed have the sense of mind to invest their own, hard-earned money? Does the hoi-polloi know what they are doing when they purchase shares in an SME? Shouldn’t the punters just run along to the nearest slot machine or lotto ticket dispenser? Beyond the fact that it is the duty of all governments to provide greater access to opportunity for their citizens (including investment opportunity), Crowdcube points to the reality their investment community is highly sophisticated. Their top six employers from their investing members are PwC, Accenture, JP Morgan, Deloitte, Google, and IBM. Wow. Now that is an impressive roster. Also, the transparency generated from an online offer drives a collective form of diligence that previously has not been available in traditional finance. Courtesy of the internet.
Crowdfunding is for Startups
While many in the chattering classes focus on early stage companies being the biggest beneficiary of internet finance the fact is this is going to change. More established businesses are beginning to see the value of raising capital online. Investment crowdfunding is NOT just for startups anymore. The average deal size will continue to grow along with the maturity of issuing companies. This is good for the platform. Good for the investor. And good for the financial industry.
Investors will never see any returns
While the industry is still quite young and investing in smaller companies is usually not a quick buy and sell venture, there have already been multiple successful exits. Crowdcube points to several of their very own. Global platform OurCrowd has had six exits to date. One is trading on the NASDAQ now.
Crowdfunding platforms are the unregulated ‘rebels’ of the finance industry
Simply not true at all. While I tend to welcome the term rebel as a title to embrace proudly, these “rebels” have been approved by the FCA (in the UK) and are constantly under their watchful eye. The FCA has never been asleep at the wheel. They understand the world is watching.
Companies raising on crowdfunding sites are over-valued
This is a tougher one – especially for early stage companies where investors are supporting a team with a vision and no financial track record. In the VC world, this is called VC math. The fact of the matter is that investors traditionally will pay a premium for expected growth trajectories. Whether you believe the pitch or not. It is up to you. Crowdcube notes that “if anything, valuations on crowdfunding sites are more transparent, open and fair because it’s the members of the crowd who decide whether the valuation seems accurate, and if the business is worth investing in.” As the industry matures and more established companies raise capital online, the valuation process will become even better. No VC math necessary.
You can read more about what Crowdcube has to say here.