Julia Groves, Downing Partner and Head of Crowdfunding, is a respected pioneer and force behind many successful digital businesses and fintech groups. Since founding ba.com for British Airways in 1994, she has instigated disruptive customer-led propositions across online retail, renewable energy and financial services market sectors.
She also developed the crowdfunding platform Trillion Fund, co-founded the UK Crowdfunding Association (UKCFA) which represents over 40 operating equity, loans and rewards crowdfunding platforms, before recently landing at Downing. In addition, Groves is a Senior Fellow of the Finance Innovation Lab, a Founding 50 member of Innovate Finance and recently completed a Non-executive Director position with Move your Money.
As a “straight-talking and passionate about making finance more democratic and energy more sustainable,” Groves works to connect innovators, platforms and investors more efficiently to originate change and induce financial reward. I recently had the pleasure of connecting with Groves via email to learn more about her views on crowdfunding regulation, Brexit, the FCA-CCAF partnership and her new role at Downing. Our interview follows:
Erin: The FCA is in the midst of a review of crowdfunding regulations. What is your opinion of the process?
Julia: The review is most welcome, and comes at a good time. It is always helpful to engage early and before anyone has developed any fixed opinions!
Erin: Do you expect additional or updated rules? If so, which changes do you predict? Do you have any suggestions as to what issues need to be addressed? Do you believe there is sufficient transparency?
Julia: Overall I do not feel there is a need for any major change to regulations at this stage, rather we need to ensure the current regulations are more accurately and consistently interpreted by the FCA authorisation team and the industry alike.
I think it would be well worth applying the higher regulatory standards of investment-based crowdfunding to loan-based, so platforms know who is lending and can better evaluate what is appropriate and what is not, but that is not a view held by all. On the lending side the issue is clarity on what exactly is covered by the 36H rules and what is not.
Erin: Where do innovative platforms cross the line into bank-like and fund-like activities, which may mean they need additional permissions from the FCA? Is there general consensus within the industry as to the status of existing regulations?
Julia: The consensus is that the regulation is largely appropriate and proportionate and achieves a good balance between opportunity and protection for everyday investors. Particularly on the investment side we are all agreed. If it ain’t broke…
Erin: How will The Cambridge Centre for Alternative Finance (CCAF) partnership with the FCA influence or aid in the regulatory review process?
Julia: This is a very welcome move – we need to regulate based on fact, not perception. I wasn’t impressed to see the FCA refer to a blogger in their Call for Input, nor by the fact that they no longer collect platform data from us. There is no more credible partner than the CCAF and I have a high level of confidence in its methods and the resulting quality of data.
Erin: Can the industry support the existing number of platforms? Do you foresee a consolidation going forward?
Julia: I think we are already seeing consolidation, this is completely normal in a new industry and will make those who survive stronger. As an ex-CEO of a startup it is heartbreaking to have to face up to the probability that your own platform won’t succeed, but there is a dearth of skills in crowdfunding and fantastic opportunities to partner and grow. We are seeing established investment firms coming into the market – with the advantage of existing deal flow and investors. There has also been a slowing of new start-ups, but I hope the innovators keep coming through – financial services needs diversity and is a huge market for those that can solve the crowdfunding trilemma of Platform-Product-People.
Erin: How is the crowdfunding industry evolving in the UK? Is it advancing as you would want?
Julia: My personal view is that debt is a more appropriate investment for a larger number of people and for a larger share of their purse, yet debt-based crowdfunding has been tiny until very recently. It was initially frustrating that bonds and debentures were given the same level of regulations as equity crowdfunding, but experience has taught me that the higher level of consumer protection, the better. We still have some work to do to create a level playing field between bonds and loans, but I am on the case. The key thing for the industry as a whole is to keep it inclusive. We want to be the Heineken of finance and reach the parts the other financial institutions can’t reach. We want to succeed not just as individual platforms, but as an industry, to change finance to make it more accessible, fairer and more engaging for all.
Erin: What issues have already precipitated from Brexit? How will Brexit impact the UK’s crowdfunding industry in the short and long term?
Julia: Let’s just say the ambiguity has not helped. Scale is the critical success factor for platforms and we need our addressable market to include Europe, and we were making real progress in increasing the EU prospectus directive threshold. Time will tell.
Erin: Downing designs and manages investment products and investment partnerships, raising and investing over £1.7 billion into diverse businesses. How and why did Downing’s new crowdfunding platform come to fruition?
Julia: There is a very compelling business case for Downing, and we expect other Investment Managers to follow. Key drivers are the new restrictions on EIS funding in key sectors for us, such as renewable energy and property based businesses, which have greatly reduced funding options for our invested partners. This is an opportunity to extend Downing’s range of funding right up to the point where our borrowers are in a strong enough financial position to go to the banks. Though even then we may be able to compete by being more responsive and more flexible. We also think that by adopting technology and offering direct investments we can offer compelling returns to our investors, but it all starts with the investment opportunity.
Erin: Downing currently has several live asset-backed bond campaigns, how has your Trillion experience affected these campaign choices and partnerships?
Julia: For me, crowdfunding is about connecting people with money, with people and businesses that need money, via a platform that gets in the way as little as possible. To succeed, first and foremost we need to offer competitive rates to lenders and borrowers, and then provide a better experience. Downing has the advantages of an existing base of some 35,000 investors, a network of financial advisers, and established relationships with borrowers with a track record. So really I am just here to make the connections by creating crowd bonds that offer compelling returns for investors, and an additional source of finance to asset-rich businesses.
We are very focused on the adviser community, and are working with around 50 more progressive IFAs to help remove the barriers to them advising on debt based crowdfunding. The bonds are secured on existing assets, we think the returns are competitive, and early indications are that investors and advisers agree. We have just hit £16m of monies raised in our eighth month on downingcrowd.co.uk and expect that number to double in the first six months of 2017 with our new crowd Innovative Finance ISA bonds.
Actually that sounds quite ambitious, I need to get back to work…