Crowdcube has become the first in the industry to hit the £200 million mark in capital raised through crowdfunding. The milestone was achieved after Bluebella, an award-winning lingerie and nightwear brand, raised over £1 million from more than 600 investors.
This is the latest achievement in what has already been a standout year for the fintech pioneer, with a series of funding milestones that demonstrates that investment rounds are getting bigger and, in many cases, faster.
‘We predicted last year that investment rounds would get bigger in 2016, with the average amount raised going up. In our experience, this prediction definitely rang true with the largest crowdfunding rounds to date having been completed on Crowdcube this year,’ comments Luke Lang, co-founder of Crowdcube.
‘We’ve now seen other businesses like Revolut and Monzo follow in the footsteps of JustPark, which last year combined the best of both worlds in venture capital and crowdfunding – capturing the expertise of VCs and the wisdom and passion of the crowd.
Lang adds, ‘We also predicted that crowdfunding would reach a critical turning point and cement its position as a mainstream route to funding, rather than an ‘alternative investment’ option. We also predicted that we would see an increase in the number of co-funded rounds, with crowdfunding forming part of larger investment rounds alongside other forms of funding such as venture capital investment and institutions.’
‘We also highlighted the fact that the crowd is much more sophisticated and smarter than people give them credit for. This was borne out in a study by the London School of Economics in February, which showed that crowdfunding investors behave in an economically rational way, making decisions based on information that is shared between entrepreneur and investors.
‘Crowdfunding’s greatest strength is the diversity of its investor community, which builds a collective wisdom that gives the crowd the ability to identify and back the best businesses.’
Returning to the crowd
We will see more businesses coming back to crowdfunding for series B and series C rounds. As well as coming back to the crowd for follow-on funding rounds, we also expect more businesses to go to the next level of investment with venture capital and a variety of institutional investors, as Farmdrop did this year when it closed a £3 million funding round led by Atomico.
More returns for investors
2015 saw the first two exits in crowdfunding, with the sale of E-Car Club, an electric car sharing scheme, to Europcar, and craft brewer, Camden Town Brewery to drinks giant AB InBev. 2016 continued the trend with a third exit in 12 months, thanks to disruptive fashion brand Wool and the Gang, which was sold to BlueGem Capital Partners.
Combined with bond interest payments, a total of £5 million has been returned to investors on Crowdcube since 2013 and we fully expect to see more returns due to trade sales and IPOs – a further indication of how the crowdfunding industry is maturing and the diversity of returns that crowd investors can expect to receive.
Brexit fallout will lead to government ‘PDAs’
There is going to be a lot of political manoeuvring and posturing in the next 12 to 24 months and British businesses and entrepreneurs are just going to have to get on with it. Business cannot stay in limbo forever. We can expect to see more ‘public displays of affection’ by the government to appease disgruntled ‘remainers’ who are unhappy and uncertain.
We’ve seen this happening already with the Chancellor announcing plans in his Autumn Statement for £400 million of VC funds for growth-stage businesses in the UK. While a good start, we would argue that limiting this much-needed cash injection of investment to traditional VCs is short-sighted and fails to recognise the impact of crowdfunding on seed-stage and growth businesses in this country.
Due diligence will remain an important talking point
Following the publication of a report in November from AltFi Data into the status of businesses that have raised finance from crowdfunding, we can expect to see more transparency around due diligence in crowdfunding and also how well businesses are performing post-funding. The industry needs a level of due diligence, disclosure and reporting that all parties – entrepreneurs, investors and regulators – can understand. This level of transparency is crucial for the industry to continue to mature. We will see a much more unified approach by the industry and potentially the development of a standard that sets out the required operating principles and a common portfolio performance methodology.
The next wave of tech businesses
According to Beauhurst, technology is still the most popular sector and the industry is waiting to see what the next wave of investment opportunities will be. We are seeing the range of businesses becoming increasingly diverse, with more and more coming from the fintech, cleantech and healthtech sectors, which are turning to the crowd to raise funds.
This year goHenry, Monzo and Crowdcube broke crowdfunding records, and we predict a growing appetite from investors to back businesses in the fintech sector.