Crowdcube CMO and co-founder Luke Lang has distributed a list of predictions for 2015. These largely apply to the market in the United Kingdom but the there is much overlap as the themes have merit around the globe. First and foremost is the simple fact that existing financial institutions have failed in their mission to provide capital to those entities that need it most. This not only impacts the innovation economy, and it is generally the smaller companies that need financing most, it imperils the viability of a market based economy to function efficiently. New creative, entrepreneurial firms like Crowdcube are stepping in and filling the massive void. Crowdcube has now financed 172 businesses, creating untold jobs and encouraging entrepreneurs across the UK and elsewhere.
The revolution that is occurring in the financial industry today has only started. While the amounts being generated by crowdfunding platforms may be comparatively small – this will change rather soon. Peer to peer lending has only recently experienced rather dramatic growth – but this too will continue to grow. The power of the internet and wide access to information is the true catalyst that is enabling this profound change – and nothing will stop this from occurring.
The banks will continue to fail SMEs.
The funding void that banks have left for start-ups and growing businesses will continue to be filled by the alternative finance sector. We’ve had a lost decade of bank lending now – and this could become a lost generation the way things are going; the young budding entrepreneurs of the future are growing up thinking that ‘banks don’t lend’.
We’ll see crowdfunding ‘roadkill’, as the market consolidates and rationalises.
There’s been a plethora of new platforms in the last 18 months, and the current number is unsustainable. Many of the new players are poorly executed and haven’t gained anywhere near the level of traction required to make a serious impact. I’m not convinced that niche investment crowdfunding platforms will ever be able to compete against the market leaders with hundreds of thousands of investors. There will be one dominant player, and then a small number of second-tier providers.
The JOBS Act will either still be in deadlock, or prove unworkable.
The Jumpstart Our Business Start-ups (JOBS) Act in the US, which is designed to encourage the funding of small businesses, has been in development for years now and the parties involved still haven’t got their act together. At the moment it looks as though the two opposing parties might continue to argue the toss, dragging out the process further, or create a regulatory environment that crowdfunding struggles to thrive in.
Government-backed initiatives will help tech businesses shine.
The London Co-Investment Fund (LCIF), in which Crowdcube is a partner, is a milestone moment for the development of tech businesses in the capital, and will make a big impact on the ‘funding gap’ they face. A large proportion of the investment will be deployed next year, rapidly benefiting tech start-ups. We think this will prompt the government to funnel more public money into initiatives like this, and that the LCIF model will be rolled out across the UK.
The ‘old firm’ will stop flirting with crowdfunding, and get properly involved.
As crowdfunding matures as an investment model, and investors realise returns – particularly when the first exits start to happen – those investment brokers who were sceptical a couple of years ago will start moving into the crowdfunding space. Their clients will be demanding the opportunity to invest in early-stage start-ups and mini-bonds through platforms like ours, and brokers will seek to partner with providers. We’re also likely to see mini-bonds included in ISAs for the first time.
More household names will choose the alternative finance route.
More established brands will look for investment through crowdfunding and mini-bonds, following in the steps of the Eden Project, River Cottage and Caterham F1, which all raised finance through Crowdcube last year. The mini-bond is geared towards bigger raises, and is an appealing option for those wanting a large capital investment. Big names are starting to see the potential of this new way of raising finance as a differentiator, and they’re excited by the ability to engage customers and communities. In light of the response to Caterham F1’s pitch this year, we’re expecting more Tier 1 sports teams and clubs to look at crowdfunding as a way of building relationships with their supporters as the trend towards ‘fan ownership’ grows. The fans get a return on their investment, a say in the running of the team and a direct benefit from their investment – improved facilities, for example. There’s something neat about that.
Online investor communities will flourish.
Online investment models will evolve from rather linear, one-dimensional, transactional processes to environments that have more of a vibrant social networking feel. Investors will be able to follow and comment on businesses, businesses will be able to syndicate people together, and interactive communities will begin to develop.
Alternative finance companies will become brands.
Alternative finance platforms will invest more time and money in marketing and building their identities and reputations in 2015, with the aim of creating strong brands that can protect them against ‘attacks’ from new and emerging companies and foster investor loyalty. Brand will be a crucial weapon as the market expands and players seek to grab market share.
Investors’ appetite for niche, complex businesses will grow.
We’re already seeing companies from specialist sectors, which address highly complex business and social problems, successfully attracting investment through alternative finance. Biotech company Cell Therapy, for example, has just funded on Crowdcube – and this is the kind of business we didn’t expect to be approaching us four years ago. As the number of registered investors on crowdfunding platforms rises – we expect to have as many as 300,000 on Crowdcube by the end of 2015 – the understanding and range of interests of the investor base broadens and deepens, increasing the capacity for niche businesses to find their audience.
Entrepreneurs will take the opportunity to make an exit.
2015 will mark three to four years since the first crowdfunded businesses launched, and it’s likely that entrepreneurs will start taking the chance to exit, and the investors who backed them will get a return as they’re successfully sold. That is an incredibly exciting prospect.