Hi, this is Wayne again with a topic “Equity Crowdfunding for Makers and Maker Pros”.
Um so my name’s luke lang, i’m one of the co-founders of crowdq, which is the uk’s leading equity crowdfunding website, crowdcube started back in 2011. At the time we were the first, not just here in the uk or in europe, but anywhere in the world, to be taking the kickstarter model, reward based, crowdfunding and applying it to businesses. So the idea was to give investors the opportunity to invest and get real shares in real equity in those businesses really trying to make investing accessible, affordable and rewarding for all and on the flip side, giving entrepreneurs the opportunity to access capital that previously was rather difficult To come by, i think the difference between equity and rewards is is really quite stark. Yeah. I guess from a reward point of view, it’s really quite limiting.
You know the businesses have to have a product that they can offer up as a reward or a download, and they need to already have an existing community that they’re able to to tap into, and they very much rely on the idea going viral and getting out There and getting some head of steam and momentum. The difference with with equity, crowdfunding and crowdcube is obviously that we bring a huge community of investors. We’Ve got 175 000 people registered on the platform that are all looking for great investment opportunities, so you’ve got that capital. There that’s waiting to be invested and of course it applies to a much broader variety of different business types, whether it be retail shops or tech, businesses looking to scale up restaurant chains, food and drink companies. So i’ve got much more broad appeal than the kickstarter model and, of course, people can raise much larger sums of money on average, a reward based platform you’re looking at the average, is probably a few thousand, although there are some notable examples that have raised tens of Millions, but with crow cube average is around yeah half a million pounds, and we’ve raised up close to um four million pounds for businesses. The reason why you’re starting to get more businesses like chirp and like sugru turning towards crowdfunding now is, i think people’s perceptions of crowdfunding has changed dramatically over the past 12 to 18 months. People are now choosing it as their primary option and the stage and the growth the growth stage of the businesses has changed as well. So it’s you know often crowdfunding is positioned much more for startup seed stage finance and we’re actually starting to see a lot more mature businesses, not just with an entrepreneur but with an executive team.
Often a team. That’S been running businesses in the pr in the past. High profile, businesses that are looking to to raise finance and in many cases, they’re they’re well backed we’ve got a couple of businesses on the site at the moment that are vc backed one of them has got the ex-ceo of of zukler on on site and an Ex executive from from ebay so really really strong teams, uh seasoned entrepreneurs that have been there done it and i think that’s helping to change people’s perceptions so you’re, starting to see not just in in kind of the the maker kind of demographic, but right across the Board in terms of the different types and stage of businesses that are coming to crowdcube and if you’re looking to compare crowdfunding equity crowdfunding for businesses, the uk and us, the stark difference is obviously the regulatory environment it’s prohibitive over in in the us. Whereas the uk, the fca, has been much more flexible in their approach and actually kind of nurtured the industry, certainly in the early days, and has introduced bespoke regulations for the industry, which has really helped it to mature and develop and and build a strong reputation.
In terms of available capital, i think i think the uk is always lagged behind the us in terms of equity finance. You know i think pre pre-crowd cube businesses turning to to equity rather than debt, was around about kind of three to five percent, whereas in the us it was 18 to 20 percent. So there’s a much stronger culture in the us of raising equity finance rather than going to debt, and i think in the uk, historically, businesses, the culture is much more. You turn to the the bank to to raise finance and i think, with the other advent of crowdfunding, that that culture is certainly starting to change.
You know the fact that we’ve got 170 000 registered investors. Many of them investing for the first time shows that there’s a real appetite for for ordinary people, ordinary everyday investors to back and support british businesses, and i think you’re now starting to see venture capital world starting to really embrace it. You know certainly much more progressive vcs. You know: we’ve worked with index ventures, we’ve obviously worked with bolderton capital that have invested in us personally.
Passion capital is, is investing in the business on the site at the moment through the platform, so i think you’re starting to see a blurring of the lines between what is kind of friends and family. What is crowd, what is angel, what is vc and in the future yeah. I think you’ll start to see institutional money start to play a key. Well, the regulatory framework in in the us is much tougher than in the uk, and it is really difficult to predict how that’s going to unfold.
You know the jobs act has been going through its various stages of progression, for for almost as long as crowd cube has existed, you know three three years or so so, and it’s obviously that development has been a lot slower than a lot of people would have Liked, i i think the presidential elections that are that are coming up in in in the next 12 to 18 months might actually slow things down a lot further, as is either side, doesn’t want to actually introduce regulations at that kind of critical stage, and they don’t Want to introduce something: that’s just going to get unwound again in in 12, 12 months time. So i i really do empathize with with startup early stage businesses in the us, because i’m sure that they’re looking across to the uk in particular, but also europe and the rest of the world, with a lot of envy, a great deal of envy. With what we’ve achieved in a relatively short period of time, and i’m sure that if the sec were to embrace crowdfunding and really try and nurture it, then the u.s market could simply you know be huge. I don’t believe that the prospect of failure, um businesses failing in equity crowdfunding is, is gon na. It’S gon na massively hurt the industry because that’s kind of built into equity finance, it’s built into equity in investment. You know we’re very, very open and honest and transparent with all of the investors about what the risks are. You know if, if you want to invest on crowd, cube and you’re, a first-time investor, then you you have to do a risk assessment um before you can even see a pitch, let alone invest in it and those questions that multiple choice, questions you know is is Rather blunt, you know, the first question is what happens to most startups the answer: is they fail? If you get that wrong, you don’t get to progress, so i think people go into this with their eyes open. They know that they’re long-term investments.
They know that they’re highly risky, they know that they’re unlikely to get any dividend payments um and – and they should be diversifying. So i think, with the way that we’ve built and structured the industry and worked with the fca to introduce appropriate regulations and investor categorization. I think that’s going to insulate us from from major failures. Having said that, you know there are lots and lots of equity crowd.
Funding platforms that are popping up all of the time, and that would be a concern to me, is that you know a new crowdfunding platform. That may not do anything deliberately, but they may not unnecessarily understand the rules and regulations as as acutely as as we do that may make some mistakes that then cast a shallow shadow across the industry, but you know we work very, very hard. You know we set up the uk crowdfunding association and we’re working very hard with you know all of the people in the industry to try and make sure that that doesn’t happen. So what would my advice be to an entrepreneur looking to choose between either rewards equity or more traditional routes, rather than rather than crowdfunding? I guess you need to look at the business and look at the aspirations of the business and look whether it’s appropriate for reward-based crowdfunding.
You know most of the businesses that we fund wouldn’t be it be appropriate for for kickstarter or for crowdfunder here in the here. In the uk um, they simply don’t have the products or the downloads or the services that would, that would generate enough interest and enough um investment or enough enough donations for them to be able to raise the kind of money that they’re that they’re looking for. I think, if you’re looking at a more serious business, that’s looking to raise a significant chunk of capital. You know in the hundreds of thousands of pounds, then offering a share of equity and a stake in the business and potential upside further down.
The line, rather than just a t-shirt as a result of a of a kickstarter campaign is, is, is probably more suitable for for the the types of businesses that we’re looking to to to attract. You know the sort of great ideas um clearly addressable markets, that they think that they can attack and scale into and really really strong, strong teams. Now don’t get me wrong. We’Ve we’ve actually had businesses that have raised money on crowdfunder, which is a uk crowdfunding platform and they raised um ten, twenty thirty thousand pounds on crowd thunder and then they come on to crowd cuban and raised north of a hundred thousand pounds. So there is a there is a progression that you can, that you can do that and we’re looking to work with crowdfunder to try and try and identify more cases like that. Certainly for businesses that are looking at the more traditional ways of raising finance they’re going down the angel route, many businesses come to us with angels already in already lined up or already wanting to invest in the business. You know, that’s that’s pretty common. You would expect that from a savvy entrepreneur, they’ve done the rounds.
They’Ve they’ve spoken to their network they’ve spoken to their wealthy friends and families, family family members, but they recognize the benefits of doing a crowd cube campaign as well. You know they recognize that if they’ve got a hundred thousand pounds from a couple of angels, they can use that as a really good springboard to go on and raise 200 300 000 pounds. You know that validation that you get from an angel can really help a crowd campaign, so i don’t think that any of them are mutually exclusive. Really and of course, you know from from crowdcube’s perspective, you can actually as well as offering equity.
You can also offer rewards as well, so that’s a common common practice that we have, and those rewards are not really designed to be the main driver and the main motive for people to invest. But they are a mechanism that allows investors to get a return. Much quicker so they can, they can get something back.
They can get that sense that they’re part of the business and they’re involved in the journey much earlier on, rather than waiting for three five six years before they get that that um, that huge return on the investment everyone is is, is looking for. .