Home Business NewsFinance News Exclusive: Is Crowdcube changing the way we invest in start-ups?

Exclusive: Is Crowdcube changing the way we invest in start-ups?

28th Nov 12 7:31 am

One year on and we talk to the founder to hear whether his innovative model has legs

Crowdcube is one of the most talked about firms in finance. When it launched in Feburary 2011 it promised to change the way firms raised equity finance. It uses an crowdsourced angel-pitching model. Everything is done online. The key is the sheer number of investors who back each firm. Righteous, a salad dressing maker, raised £75,000 from 82 investors

It’s had some big successes. The Rushmore Group raised £1m from 143 investors.

As we head towards the first birthday of Crowdcube, we thought we’d catch up with founder Luke Lang (pictured, right, with CEO Darren Westlake) to find out what he’d learned so far.

“The big lesson is that food and drink sectors do very well,” he tell us. “Kammerlings, London Distillery Company, Righteous – these are firms which produce tangible products which people can buy in Waitrose.”

This may have something to do with the tricky nature of online investing. People like to understand precisely what they are putting their cash into.

“Online ventures do well. The London-based site Escape the City did well. They raised £600,000 over the sumer. People could see the potential of that business. Ecommerce and tech have done well too.”

“The deal raised Crowdcube’s total to 31 funded pitches raising £4.45m in seed and growth capital”

We’ve begun to get a feel for the size of businesses which are right for the Crowdcube model.

“The sweet spot is £20,000 to £150,000. This is below the radar of a business angel, and too much for a bank.”

He says the trick is co-investing.

“The best firms bring their own community to the fund-raising. Here is the City had 60,000 users, and they tapped into that. If you can bring your friends and family to the rund raising that helps. We have an investment community of 25,000. Where it works is when you can augment that with your own base of investors.”

It is clear that when firms combine tangibility, the right investment amount, and appeal to a wide constituency of investors, then Crowdcube works pretty well.

A former banker raised £20,000 in November for his book Financial Fairy Tales, which teaches business and finance to children. He found 22 investors prepared to stump up the cash in return for 20 per cent of the equity.

It’s not the sort of project which would have had a happy hearing at an angel event, nor, one can speculate, in the bank manager’s office.

The deal raised Crowdcube’s total to 31 funded pitches raising £4.45m in seed and growth capital.

Lang says he’ll stick to the same model over the next year. “We are continuing to grow, “ he reports. “The first year was hard, raising the profile of the industry. I read an Experian report saying 30 per cent of business owners were aware of equity crowd funding. I’m delighted we’ve achieved that. My goal is to make equity investing  into a normal asset class, much the same as investing in an ISA.”

We are some way from there. But the first year of Crowdcube has proved that crowd-sourced online equity investing works, and is growing.

Who can say where it goes from here?

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