First, off why did you set up Crowdcube and what’s been your proudest moment since founding the company to date?
I’d been running my own businesses and as an entrepreneur I realised first hand how difficult it is to secure investment. I’d had a great experience from angel investors but they’re in high demand, and banks adopt a no-risk approach to lending. So I wanted to make it easier for people to become angels themselves and tackle this funding challenge.
Instead of competing for limited business angel or venture capital funding, start-ups can use Crowdcube as a platform to connect with a nation of ‘armchair dragons’ to find investment.
There’s no single proudest moment as such but I’m very proud of where we have got to as a business and what we achieved in 2018 specifically. Monzo, the digital challenger bank, raised the bar yet again with their breathtaking £20m raise, which wrapped up a series of mega-deals to complete their campaigns on Crowdcube in Q4, including Mr & Mrs Smith (£5.9m), gohenry (£6m), Chip (£3.8m) and, of course, Crowdcube (£8m). Entrepreneurs at ever-larger companies chose Crowdcube to connect with crowd investors who want to back young companies they believe in.
There have been a lot of changes (specifically regulatory) in the equity crowdfunding industry since inception. Where do you see Crowdcube and the crowdfunding industry, in general, going over the next three to five years?
Crowdfunding is a highly effective way for ambitious startup, early and more established growth stage businesses to raise investment from their customers, friends, family and professional investors including venture capital firms.
Improvements to Innovative challenger-brands like Monzo who raised £20m in December, and gohenry and Mr & Mrs Smith who each raised £6m in 2018 are clued up on the benefits of crowdfunding and have exploited newly relaxed rules that governed the amount businesses could raise via crowdfunding before needing to produce a costly prospectus.
Crowdcube is a serious growth finance solution of later stage, well backed businesses and we’ll see more and more established growth companies, like Monzo, turn to the crowd and reap the benefits of their customers becoming shareholders.
Many high-risk investment products (such as equity crowdfunding) are not for everyone. What pointers could you give potential new investors to reduce risk and increase potential profits?
We’re very upfront about the risks involved in equity crowdfunding. Investors should therefore implement a diversification strategy when building an investment portfolio. Diversification involves spreading your money across multiple investments and will give you, as an investor, greater peace of mind that your investments will be sustained in adverse market conditions, and losses will be cushioned.
It’s also important to take advantage of the UK government schemes designed to offer a range of tax relief to investors who purchase new shares in companies. There are two key, and very generous, tax breaks to look for when it comes to investing on Crowdcube: The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS). More information on these schemes can be found on our site.
One of the main risks with crowdfunding is the inability for investors to sell their shares. Do you think there will ever be the liquidity for a tradable secondary market for equity crowdfunding investments or do you think that is just the nature of the asset class?
We facilitated several secondary share sales in the last 18 months. For instance, investors who backed Revolut, Britain’s first digital banking unicorn via Crowdcube, have now realised returns of ~19x on their original investments. Backers of another British unicorn, BrewDog, have also had the opportunity to realise returns while we’ve helped investors in Celixir and Mettrr Technologies realise returns up to 10 times their initial stake.
It is an incredibly complex challenge to build an effective secondary market. Right now we’ve focused on scaling Crowdcube to give investors a greater choice of investment opportunities while also funding more and more ambitious businesses. Our strategy is working with a record number of investments, investment and funded businesses in 2018. That said, the entrepreneur in me is itching to solve the challenges associated with creating a secondary market.
And finally, what would be your top three online resources for new investors wanting to learn more about investing in start-up companies?
- Investopedia has a wealth of information and is a good place to start.
- On crowdcube.com/explore you can find all kinds of information on our blog ranging from how to invest in startups to how to make the most of the tax relief schemes on offer from the government.
- UK Business Angels Association provides detail on what to look for in a deal and influencing investment outcomes, among other useful tips on how to invest in startups.