“Myths exist in every aspect of business life and our industry is no different. Our job is to set the record straight and give both businesses and investors the opportunities and rewards they deserve.”
1. Crowd sophistication
“One thing an entrepreneur might hear is that ‘the crowd’ are unsophisticated. This often comes from those misinformed and unfortunately undermines the credibility of investors. Crowdfunding investors tend to be a sophisticated and knowledgeable bunch, highly educated and affluent, with many working for large global brands, like JP Morgan, IBM and Google. Around 60 per cent of over £100m invested through Crowdcube in 2015 came from ‘sophisticated investors’ or ‘high-net-worth individuals.’
“It’s also important to remember that the crowd brings a collective wisdom alongside the pooling of capital. Diverse experiences, backgrounds, expertise and capital all contribute to whether a business reaches its funding target.”
2. Seeing returns
“Another interesting myth is that investors will never see a return on an investment. Well it’s already happening with two exits in 2015. E-Car Club became the world’s first crowdfunded ‘exit’ when it was sold to Europcar, giving the 63 people who invested £100,000 in 2013 a multiple return on their investment. Then, Camden Town Brewery sold to the world’s biggest drinks company, AB InBev right at the end of the year. In crowdfunding terms this was an important milestone and has finally seen the industry come of age. In addition, several businesses to raise finance through a bond on Crowdcube, such as the Eden Project, River Cottage and Chilango, have also made interest payments to investors.”
3. Regulating crowdfunding
“More recently we’ve seen concerns about the regulation of crowdfunding. So now is a good time to put some of these issues to bed. Crowdfunding platforms must be authorised and regulated by the FCA (Financial Conduct Authority), the same as any other reputable financial services provider. The UKCFA (UK Crowdfunding Association) and its members, of which we are one, have worked very closely with the FCA to create a new regulatory framework that balances consumer protection with regulation.
“Commentators have also questioned whether companies raising money on crowdfunding sites are overvalued. It’s important to remember that a business’s valuation is subjective. 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.
“Crowdcube has a team of experienced analysts who assess the businesses on the site. Investors discuss them openly on our forums, and often a company will re-evaluate its position based on feedback from the crowd. The industry is seeing higher valuations overall, which reflects the changing profile of the businesses that are pitching, many of whom are established businesses with proven track records of success looking to raise growth capital.”
4. Future investments
“We also get asked about future funding and whether a raise on a crowdfunding site will scupper plans for other forms of investment, such as venture capital funding. The truth is that it’s now commonplace for venture capital firms to collaborate with leading crowdfunding platforms.
“We’re working with a growing number of Europe’s leading venture capitalists, such as JustPark, backed by BMW iVentures and Index Ventures, and Adzuna, backed by Index Ventures, Passion Capital and The Acceleration Group. In addition, Balderton Capital, DN Capital and the UK government through the mayor of London’s landmark London Co-Investment Fund (LCIF) are other prominent investors alongside the crowd on Crowdcube.”