By James Tuckett, Co-founder and CEO of investUP – the crowdfunding supermarket
Every couple of months I write a blog talking about trends in crowdfunding. Now one might think that this is simple regurgitation of the same tepid words, like much of the content which plies the inter-web. But what’s great about crowdfunding is that every couple of months new trends emerge, the industry is developing in front of us and there is genuinely new stuff to write about. So without further ado here are some of the top 3 emerging trends I have been witnessing.
Trend 1: the number of crowdfunding platforms is continuing to grow
The idea of consolidation within the crowdfunding world is clearly premature. According to Massolution, the renowned think tank, the global number of crowdfunding sites has grown from 308 in 2013 to over 1,250 in 2014. Whilst remembering that this estimate covers every type of crowdfunding, from investment-based to reward, this still shows stark growth. Whilst the big names might be leading the way, the smaller sites are finding their niche. They after all are often still in organic growth phases and do not have the need to spend vast sums of cash raised from VCs on marketing. As a demonstration of the growing number of sites, figures in August from Bovill, the Financial Services consultancy, show that in the UK 114 P2P lenders have applied for FCA approval since the start of April 2014. Add equity crowdfunding sites to the mix and that’s a lot of British crowdfunding sites in existence.
Trend 2 – crowdfunding is becoming the first avenue for funding
Venture Capitalists are the prime source of funding post-seed rounds. But this is slowly changing. A range of companies are now seeking funding from the crowd at far later stages than ever before. And some are not just seeking funding. This summer E-Car Club, a company which raised money through crowdfunding, returned money to investors when the company was sold to Europcar. Whilst the figures were relatively small, the symbolism of this exit cannot be doubted. Crowdfunding is growing up and becoming an innovative alternative for a full range of companies.
Indeed many VCs are now offering their funds as part of a crowdfunding raise. The reasons why are simple: it shows that the company has traction, they get ‘free’ marketing and see if support for the product exists. Crowdfunding can become the litmus test for whether the VC should commit their money. Great examples of this are the last major fundraises by equity crowdfunding sites in the UK. Some companies are even turning down venture funding such as JustPark. And then you get companies like BrewDog, who don’t even go to the professional investors, instead uniquely crowdfund themselves and take investment on a crowdfunding site.
Trend 3 – equity and lending are continuing to grow
Equity crowdfunding is continuing to steam ahead and dominate the news. There is no doubt that equity is becoming a powerful force. Predictions have equity crowdfunding as becoming in 2020 the leading global source of start up finance. That is naturally if it stays on its current high rate of growth. But equity really is a small player in the current funding system, although it has huge potential and can scale in ways that VCs cannot. What will happen when awareness skyrockets and the normal investor starts to dip their fingers in? The potential growth and impact on start-ups will be incredibly powerful.
But the true star is the quiet cousin of equity crowdfunding – lending. Platforms such as Zopa, Ratesetter and smaller sites such as Saving Stream, Thin Cats and Assetz Capital are all starting to steam ahead. And lending is not being driven by the institutions. Retail money is alive and strong. The crowdfunding sites are held back by a need for more businesses, as opposed to a lack of retail capital. We are starting to see retail investors who have 100s or even 1,000s of investments, spread over sometimes 10-15 crowdfunding sites. These lenders seem well aware of the risks of investing. Both equity and lending and equity crowdfunding often allow investment from £10, enabling all to take part. What’s there to hate about true financial inclusion?