In the UK, issuers using crowdfunding platforms may raise as much as they want. The caveat has always been the requirement of a prospectus for issuers raising more than €5 million – a substantial hurdle. Earlier this year, the UK increased the crowdfunding cap in line with changing EU law that saw the prospectus requirement increased to €8 million (USD $9.4 million). Crowdfunding campaign Mr & Mrs Smith now claims to be the first offering to take advantage of this increase as their offering on Crowdcube has now raised £4.84 million (€5.4 million) from 1524 individual investors.
Mr & Mrs Smith offers a collection of boutique hotels, villas, and cultural experiences to its members. To date, it claims it has booked more than £60 million in reservations in the last year alone. Booking commission have grown by 35% year on year. The crowdfunding campaign on Crowdcube seeks to raise the growth capital necessary to accelerate the development of their service in the the US market and more.
‘The UK government deserves a great deal of credit for increasing the prospectus limit and making it easier for individuals to invest in entrepreneurial British companies,” comments Ed Orr, CEO of Mr & Mrs Smith. “This will make a real difference to businesses that have established themselves at home and are now looking to accelerate their growth. For Mr & Mrs Smith, it has meant that even more people who are passionate about the business can join us on our journey to expand around the world.”
While the increase in the funding cap may be good for Mr & Mrs Smith, it is great for UK crowdfunding platforms. The sector is still struggling to hit profitability – something that is made more difficult by the smaller funding rounds intrinsic to many early stage firms. Additionally, by attracting more mature companies, as opposed to startups, crowdfunding platforms stand a better chance of matching retail money with professional investors such as angels and VCs. Later stage firms, in contrast to startups, may be less risky too when it comes to investing.
In the US, the investment crowdfunding sector has struggled due to a convoluted regulatory approach designed by policymakers who don’t understand early stage capital formation. The best known crowdfunding exemption, Reg CF, has an anemic cap of just $1.07 million – thus diminishing the exemption to limited relevance.
The UK has been the leading jurisdiction when it comes to the European crowdfunding sector. An entrepreneurial culture of risk taking, advantageous tax programs (such as the EIS and SEIS), combined with a regulatory environment that is friendly towards online capital formation, have helped the investment crowdfunding sector to grow. One may expect the growth rate to increase with larger offerings under the new prospectus limits.
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