Investing
Crowdcube opens up crowdfunding with new fund launch
Fans of crowdfunding sites can now hand over the task of picking companies to a professional investor after industry heavyweight, Crowdcube, launched the first crowdfunding investment fund.
Crowdfunding sites are platforms where entrepreneurs can bypass the traditional bank or institutional investment funding route and ‘pitch’ their ideas directly to potential investors.
Crowdcube, which has funded more than 90 businesses since it launched in 2011, said the fund will suit people who want to invest in start-up and early-stage businesses but who do not have the time or resources to fully research and review pitches.
The fund has a minimum investment limit of £2,500 and will be managed by Strathtay Ventures, a subsidiary of AIM-listed Braveheart Investment Group. The managers will pick from companies listed on the Crowdcube website, most of which qualify for enterprise investment scheme (EIS) and seed enterprise investment scheme (SEIS) tax relief.
“Only 10,000 out of our 60,000 registered users have actually made an investment. We are hoping that the fund will encourage the other 50,000 who have not yet taken the jump,” said Luke Lang, co-founder of Crowdcube.
Crowdcube is one of a number of crowdfunding sites to materialise over the past few years as banks have implemented stricter lending criteria. Other examples include Seedrs, InvestingZone and SyndicateRoom.
However, Crowdcube claims to be the biggest in the industry. The average investment on the site is £2,500-£3,000 but the minimum is £10.
“We want to democratise investment, remove the elitist barriers and make angel investing more accessible,” said Lang.
The rise in the popularity of crowdfunding has prompted the Financial Conduct Authority (FCA) to issue new proposals on regulating the industry.
Crowdfunding case studyPeter Hall, a 34-year-old software developer from London, has invested in five small food and drinks businesses through Crowdcube: Kamm & Sons, the London Distillery Company, the Rushmore group of bars and the Clove Club restaurant. Explaining why he invests through Crowdcube, Hall said: “It gives you visibility of a huge variety of businesses that are looking to raise money. You have the opportunity to browse and see who they are and what they’re trying to achieve, and then get involved at an early stage. Most of the businesses are eligible for EIS and SEIS tax relief, which is a big plus.” “You’re in touch with the people running the business – you can communicate with and meet them, and maybe even have an impact on their decisions, which you don’t get with the stock market. The founders talk to me, and make me feel I’m part of the business. With Kamm & Sons, I see the product on the shelves in bars around London – it’s really nice to see it successful and growing and know that I’m helping to support that.” What he looks for in a pitch: “The business has to be offering enough equity in return for the investment: if I’m going to invest £10,000 and end up with 0.03% of a business that isn’t already well established, that can be hard to justify. The valuation also has to be realistic. “I’m not only looking for return on the investment; I want to feel like it’s a personal relationship, so the history of the people involved is important too. I like the entrepreneur to be enthusiastic, with real background experience of the industry – this means they’re more likely to be successful and follow it all the way through. The video gives you a real idea of the person.” Hall’s advice for investors: “What’s worked for me is investing in an industry I know something about and I’m genuinely enthusiastic about – so drinks businesses were the perfect thing. That way, you can tell whether they’re going along the right track or not. “When selecting an investment, I’d probably choose the company that speaks to me best – the one that gives me the sense that as the business progresses they’ll keep communicating with me.” |
