When you hear the term ‘crowdfunding’, it is likely you think of Kickstarter and thousands of people investing lesser amounts of money to pool together to help a project get off the ground.
However, the evolution of the market and the wide-ranging types of both investors and companies has led to it becoming a more accepted source of financing a start-up or scale-up business.
Business Leader Magazine spoke to Oliver Mochizuki, Co-Founder of Bristol-based Fundsurfer, and Luke Lang, co-founder and CMO of Exeter-based Crowdcube on the rise of crowdfunding and what the future of the of it will be.
As a relatively new way of sourcing funding, the industry has had to overcome the initial scepticism from investors and dismissal from mainstream lenders to evolve from a niche source of capital, to being the backbone of multi-million pound companies.
Shifting towards mainstream
Lang explains the evolution of crowdfunding: “It has certainly shifted towards the more mainstream. It has become an accepted form of raising finance. If you look at the leading UK crowdfunding platforms, in terms of the number of deals funded, a sizable proportion of them are done on crowdfunding platforms.
“It is certainly having a material impact on those businesses that are able to raise capital through crowdfunding and those businesses are hiring – there is job creation and safeguarding of jobs. There are new offices opening, new products and services being launched which is enabling businesses to export overseas.”
Mochizuki concurs and sees the industry developing further. He said: “What we are seeing, in terms of the crowdfunding sector evolving, is that a lot of crowdfunding platforms have realised that they are not going to be the next Kickstarter. So, there’s a lot of diversification now in terms of the funding options.
“We are seeing more and more platforms offer access to additional funding options. We are going to see a lot of diversification in terms of the services offered, but we are also seeing a much higher take-up now and understanding is increasing as crowdfunding becomes more of a mainstream funding option. It’s opening up massive opportunities to projects and companies which perhaps would have struggled to raise the start-up funding they need.”
With further development and evolution on the horizon, especially in the niche markets, many crowdfunding platforms have been created over the last few years.
However, platforms that have managed to adapt to the ever-changing economic conditions and form of financing a business have grown quickest.
Lang said: “I think those platforms certainly are able to generate investment and liquidity and engagement from investors and have really sparked and peaked the interest of entrepreneurs.
“If you are an entrepreneur that has got a large community or customer base or a large network, there are lots of additional benefits of an effective crowdfunding campaign.
“If you execute effectively then there is the opportunity to get some publicity off the back of that success and have a PR bounce as well. There are a number of benefits beyond just the capital but increasingly we are the place to come to get that access to that capital.”
Crowdfunding has helped start-up and scale-up businesses from across a variety of sectors and has raised lesser amounts of capital as well as raising multi-million pounds of investment.
To demonstrate how much crowdfunding has grown, last year, Crowdcube set a record of raising a staggering £1 million pounds in 96 seconds for Monzo Bank – they also had a £10 million raise for Scottish craft beer company, BrewDog last year.
However, unlike traditional sources of capital, whether it is a bank loan or government grants, crowdfunding encourages personal involvement from the ground level for a project that someone personally believes in.
Lang explains: “We have conducted research into the motives of investors and return on investment is always top of that list. They do it for lots of reasons, but primarily it is because they think that the business is sound and that they think they will get a return at some point in the future.
“It is undeniable that there are other motives at play, whether there is social impact, an environmental impact, or a perceived economic impact of backing a business. I certainly think there are other factors at play as well. When you boil it down to why they invest into the business, it is all about the idea, it’s about the product or service and how that sits within the market and its competitive landscape.”
As two of the leading crowdfunding platforms in the UK, the need to adapt to the market is important and both men have a sharp vision of where their respective companies will be heading next.
Mochizuki said: “We are essentially going to become a tech enabled investment bank, while we will continue to offer crowdfunding services directly on the platform, we are also going to be looking at setting up investment funds, managing funds with investment bank partners in the US and UK.”
Lang said: “We will continue to attract the best businesses to the website. Now, we are also testing through a beta market place how we might do secondary transfers of shares by creating some liquidity so early investors in the businesses might be able to sell those shares to someone else.”