This article was originally published in February 2020 in The Deal.
Last month, we published our annual report, The Deal, on the state of equity investment into the UK’s high-growth economy. Throughout 2019, 1751 investments were made into the country’s startups and scaleups, almost a quarter of which included participation from crowdfunders. Indeed, there’s been a meteoric rise in the activity of crowdfunders since we first started tracking UK investments back in 2011, and 2019 reflects the busiest year on record for these platforms, with 424 deals completed. The past decade has been the stage for their debut into the equity investment world, so we’ve asked three experts in crowdfunding what 2020 and beyond will mean for these investors.
What is crowdfunding?
Equity crowdfunding platforms allow capital (from chunks as small as £10) to be exchanged for stakes in companies looking to raise funds, taking on the challenges of organising and administrating thousands of investors within a single round.
Which are the top crowdfunding platforms in the UK?
Crowdcube and Seedrs are the top two equity crowdfunding platforms in the UK. Crowdcube facilitated its first investments into startup companies in 2011, making seven investments totalling £1.6m. Seedrs made their debut in 2012, facilitating seven fundraisings worth £248k. Both are now involved in hundreds of deals every year, both in the UK and abroad.
These platforms aren’t just the top crowdfunders, but also the most active investors in the UK as a whole. In 2019 Seedrs took the crown as the UK’s number one most active investor, having facilitated 215 investments throughout the year. Coming in a close second in the overall rankings, Crowdcube participated in the highest number of seed-stage deals in 2019. Whilst total UK deal numbers dropped between 2018 and 2019, both Seedrs and Crowdcube saw deal activity rise by 36% and 14%, respectively. Clearly, the crowd is showing great appetite for a chunk of the UK’s fastest-growing businesses, and entrepreneurs want them on board.
SyndicateRoom positioned itself as an equity crowdfunding platform that allowed amateur investors to co-invest alongside professional investors from 2013 to 2019 during which they helped raise over £250m. In 2019, they moved towards an index-informed portfolio approach. Through this move, they plan to give investors access to the top-end of the startup market, and not just those that use traditional crowdfunding platforms. Our 3 experts hail from these top organisations.
Our experts
Luke Lang
Co-Founder and CMO
Crowdcube
Marcin Zaba
Head of Marketing
SyndicateRoom
How can the ecosystem best support early-stage companies to grow and develop further?
Roberto Napolitano, Seedrs
The ecosystem can best support early stage companies through access to finance and companies like Seedrs offer any stage private company the chance to raise funds to grow their business. A big part of that in the U.K. are the tax relief incentives for early stage investors through EIS and SEIS. The government has thus far been very supportive of funding ambitious startups, and we’re renowned for fostering an innovative and supportive environment for entrepreneurs, so we’d like to see that continue.
Luke Lang, Crowdcube
The support ecosystem for startup and early stage businesses has changed beyond recognition in the 10 years since Crowdcube started. In London, co-working spaces, accelerators, incubators and support networks are now widespread. Sadly such a powerful ecosystem doesn’t yet exist outside London and things need to be improved to give regional businesses a level playing field on which to prosper.
Beauhurst’s report on Female Entrepreneurs highlights the struggle women have finding finance. Crowdcube is a notable bright spot with crowdfunding topping the chart for source of finance for women entrepreneurs, but clearly much more needs to be done to redress this imbalance.
Marcin Zaba, SyndicateRoom
I think there’s already a good amount of support for the earliest stage startups; Funding is encouraged by tax relief schemes and support networks are well developed and relatively open. The key issue is the funding gap for companies requiring between £1m and £5m in equity. Earlier stage investors, such as angels and crowdfunding platforms, can’t handle these alone, but venture capital and private equity firms are progressively moving to more later stage deals.
What do you think the biggest challenges will be facing crowdfunding in the next five years?
Roberto Napolitano, Seedrs
Regulation changes in early stage fintechs can always be a challenge. We have worked with the FCA in the U.K. over the past years to ensure we can continue to innovate this sector in a way in which maintains our high standards and the regulatory requirements.
Luke Lang, Crowdcube
Maintaining the rapid growth of crowdfunding in the UK will always be challenging but one we’re relishing. I expect to see more overseas businesses raising with us, especially in the EU where new rules are changing to reflect what we have in the UK.
It’s also vital investors realise returns; we’ve had many notable exits and three businesses who’ve raised with Crowdcube have gone on to become unicorns, worth a billion dollars or more. I firmly believe that the next generation of unicorns, whose community is at the heart of what they do, will be fuelled by their customers.
Marcin Zaba, SyndicateRoom
With 35,000 active investors already claiming SEIS/EIS in the UK, I’m not sure there are many more individuals who are willing to pick and choose their own startup investments. However, we believe that there’s a much larger group of underserved passive investors. On top of this, the average growth rate (CAGR) across all companies that have received equity investment is 30%; the performance rates published by crowdfunding platforms have been below this. Unless these figures improve, or the ecosystem sees some big, notable exits by crowdfunded companies, investors may lose confidence in crowdfunding as an asset class.
What are your plans for 2020?
Roberto Napolitano, Seedrs
2020 is a very important year for Seedrs. After our successful 2018 and 2019, this year we will continue our journey to becoming a full-scale platform for investing in private companies.
Think about what Amazon did for eCommerce, but in the context of venture capital, private equity and investing.
Luke Lang, Crowdcube
We’re hell-bent on helping more businesses than every raise investment with Crowdcube in 2020. We’ve seen a strong shift towards later-stage, often VC-backed businesses who raise larger amounts – over £5m – with Crowdcube. I expect this trend to continue as more businesses understand the benefits, through increased revenue, engagement, loyalty and advocacy and of turning their community into shareholders.
We’ve also got our nose to the ground for growing sectors, covering sustainability, insurtech, legaltech, healthtech and edtech. It’s going to be a tremendous year!
Marcin Zaba, SyndicateRoom
SyndicateRoom will be continuing to invest via our new fund Access EIS, launched in 2019. The returns in the equity investment world seem to be driven by the top 1-10% of companies. So, using Beauhurst data, we’ve created an index of the best performing ‘super-angels’ and their investments, and are looking to co-invest with them across all their investments. By investing across the entire top-end of the market, we want to become an early backer of every single future British unicorn, not just those that happen to crowdfund.
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