By Luke Lang, co-founder Crowdcube
For many British businesses, raising finance has become increasingly difficult in more austere times with banks, VCs and other financial institutions reigning in their lending. In fact, raising money is difficult at the best of times, which has led startups and growth businesses to seek alternatives.
Crowdfunding is still a relatively new concept, which has seen its popularity grow since around 2011 when the likes of Crowdfunder and Kickstarter first appeared in the headlines. In simple terms, it is democracy working at its best. Both entrepreneurs and well-known business figures like Streetcar founder, Brett Akker and Michel Roux Jr, are turning to the ‘crowd’ in order to raise money. Ordinary investors decide what funds and what doesn’t, and the wisdom of the crowd collectively decides which businesses reach their target.
For an equity-based crowdfunding site like Crowdcube, investors also get a stake in the business they help fund. The key here is that these investors are not the Alan Sugars of this world or on Dragon’s Den. They can be members of the public with savings in the bank and a keen eye on an investment in a business they like the look of or they think will do well. This way, they share in the success of the company and become a shareholder and may even take an active involvement. As with any investment, it is not without its risks of course and not all businesses succeed.
Risks aside, the popularity of crowdfunding continues to grow year on year. Since launch, Crowdcube has raised over £36m on the site, attracting more than 85,000 savvy investors and 140+ companies. Half of all these businesses are based in London, making London the heart of our community.
Exciting companies like The Rushmore Group and Escape the City are top London funders, with Brett Akker’s new storage company LOVESPACE joining the ranks – these four have raised nearly £5m between them.
Food and drink companies do particularly well using the crowdfunding model – Kamm & Sons and the London Distillery Company are good examples of London businesses that have gone on to do great things. A British aperitif distilled using a blend of natural botanicals, Kamm & Sons was founded by former sculptor and self-styled bar guru, Alex Kammerling. Alex was so impressed with crowdfunding, he came back for a second round last year to raise another £325,000 to his initial £180,000 investment to help export the product to other markets.
Corrado Accardi, a London Business School alumnus, opened his first pizza-by-the-slice shop in the City this summer using a £440,000 investment. The experience raised not only pounds, but also visibility among London landlords, corporate customers and potential franchisees.
Crowdfunding doesn’t just provide for equity though, there are other ways for consumers who want to earn some interest on their cash. London Mexican restaurant chain, Chilango, made headlines recently when it soared past its £1m target after launching its Burrito Bond to help expand the business across the city.
Investors demonstrated their hunger to lend cash to the fast-growing business in return for 8% interest per annum over the four-year term of the mini-bond. A variety of benefits are also in store for bondholders, including: two free burrito vouchers to all those that invest, a VIP bondholder party to the first 100 to purchase a Burrito Bond, and those that invest £10,000 or more will be entitled to free food for the duration of the bond.
E-commerce startups also do well, with Escape to the City – which helps professionals make career transitions – raising £600,000 after turning down two offers of venture capital financing in favour of crowdfunding.
While the ‘sweet spot’ for startups using the Crowdcube model is around £150,000, businesses in London typically do much better, with Rushmore Member’s Club, which owns Milk & Honey and The Player, successfully raising £2m and Akker’s LOVESPACE venture raising £1.6m in just 12 days this year.
It’s not just London entrepreneurs that do well either. Currently, 65% of investors are located in the capital, with around half of those (46%) in South London, 19% in East London, 18% in West London an the rest in North London. Outside of the capital, the South East (55%) and South West (29%) are the most popular locations for investors. Over half of our investors are between the ages of 29 and 48, but age is certainly no barrier and one our investors is over 100 years old!
Crowdfunding is supporting more than just entrepreneurs and investors though – it’s offering so much more. With the London job market booming, crowdfunding is playing its part – to date, businesses that have funded on the Crowdcube site employ 426 staff, a figure that’s estimated to increase to 1,500 in three years’ time.
As more and more businesses looks to crowdfunding as a democratised way to raise finance, I believe we will continue to see more risk taking and more innovation in the startup sector than ever before in London and across the UK.
Luke Lang, is co-founder and director of equity based crowdfunding platform, www.Crowdcube.com ,which has just opened an office in Dean Street.