Democratise, decentralise, disrupt...
Crowdfunding's unstoppable impact
We’re dedicated to helping you disrupt your markets. Or cope with it when the inevitable happens. And to help with a little insight and inspiration of how it’s done, we’ve created the Virgin Media Business Disruptor 10 list, in conjunction with Fast Track 100 – as published in The Sunday Times.
Here, in the seventh part of our 10-part series, we learn how one disruptor is, in fact, a self-sufficient engine of disruption. Put your hands together for Crowdcube…
The wisdom of crowds
The plan was relatively simple. First - give early stage businesses better access to finance. Second - give more people the chance to invest in businesses.
In 2011, with this two-sides-of-the-same coin goal in mind, Luke Lang and Darren Westlake began to devise a firm that would turn investment on its head, throwing the door open to those outside traditional angel networks.
Five years on and Crowdcube has raised over £200m for more than 450 enterprises, including fellow Virgin Media Business Disruptor 10 enterprise, BrewDog. Ironically, it was while seeking funding for their new venture that Luke and Darren realised the extent to which the seeding market was ripe for disruption.
Lazy angels making money
Luke says: “Back then, things were heavily skewed against the entrepreneur. There was essentially a fee to access the process. Just to present our idea we had to pay for travel and hotel rooms and dinners, with no promise of getting anything back. It was a model developed in the last century that hadn’t evolved. Angel networks should have seen lots of innovative digital companies coming through, but because the industry was so fragmented, with angels happily making lazy money, there was no need to change.”
Crowdcube went on to raise £27m from a combination of VCs and crowd investors. Technology has been a key factor in the firm’s growth from a two-man startup to a company with 80 employees and an investor community of over 300,000. Subscribers can support businesses from their handhelds, which means the process is open to a new demographic who would have been excluded before.
The 1M mobile investment
Luke says: “Investment shouldn’t be the preserve of the wealthy and the well-connected. Why shouldn’t everyday people back businesses they believe in? I’m proud that we have democratised angel investing. The online platform means investments can be done quickly. Our most popular time for investment is between 1 and 2pm. During commuting times, activity shifts onto mobile. Old-style angel networks still write cheques, but on our platform you can invest £1m using only your phone. Last year the mouldable glue maker Sugru raised £1m of its £3.5m crowdfunding with a £1m mobile investment at midnight.”
Disrupt and conquer
Previously the preserve of London-based investors, Crowdcube has also helped to decentralise the UK’s capital-centric investment ecosystem. Luke claims this is having a positive impact on the distribution of wealth, helping to spread spoils of innovative business in some of the country’s far-flung regions.
Luke says: “Before Crowdcube came along you may have been forced to move your headquarters to London to be near investors. Now you can stay where you are. Angel investing is no longer just for HNWIs. You can break investments into small amounts that suit your own situation and finances. This all has a ripple effect on the economy, helping to create jobs, build new products and boost exports. One of our values is “disrupt and conquer”. We don’t just do this for the sake of it. It’s a culture of creative thinking and we want to go out and change things for the better.”
Valued at 245M a year - and growing
Last year Crowdcube’s platform raised a total of £90m, which is about 50 per cent of the entire crowdfunding market. Having profoundly disrupted a market, it is hardly surprising that mainstream players have started to take notice of Crowdcube’s success and others are trying to imitate what they do.
Luke says: “We are seeing the size of the funding rounds increase, which is partly because as the industry continues to consolidate and mature, traditional brokers and corporate finance advisers are becoming more comfortable recommending us to clients, which is great. There are also a handful of other startups trying to carve their own niche in the market.”
When Crowdcube launched, the equity crowdfunding sector was worth virtually nothing in the UK. Now it is valued at approximately £245m annually, and given the pace of disruption, Luke is certain the market will continue to grow.
He says: “Our best estimate is that our platform alone could end up rising by £250m to £400m a year. We have a huge opportunity and are aiming to create an ecosystem of strong partners to help generate significant value for both entrepreneurs and investors alike. Our affiliate network, which incentivises brokers to make business introductions for a commission fee, will become a key part of our company’s growth into 2017 and beyond.”
For Crowdcube, like the rest of the Virgin Media Business Disruptor 10, the best is surely yet to come.