New Crowd, Old Rules. The Growth of Equity Crowdfunding Platforms

by Donald Gillies, Business Development Director at Fireflock.com

Fireflock.com is a premium crowdfunding platform designed to match high net worth and sophisticated investors with start-up, early stage and developed companies looking to raise capital. Fireflock is based at Level 39, Canada Square in London’s Canary Wharf, and is Europe’s largest accelerator for FinTech companies.

Equity crowdfunding is not a new concept. To claim otherwise is as misguided as it is disingenuous. As far back as the 17th century companies have endeavoured to realise their growth ambitions by raising capital from the crowd. Indeed the successful equity crowdfunding campaign conducted by the Dutch East India Company in 1602 influenced much of European history and the development of financial markets for centuries to follow. Whilst few companies can hope to catalyse the same degree of change, the recent re-characterisation and explosive growth of equity crowdfunding as an industry serves to show that now, as then, the crowd can play a vital part in building a thriving, diverse global economy.

Fundamentally, the process of raising growth capital from the crowd has not changed. It is the coming together of ambitious entrepreneurs – capital-starved but full of innovative ideas – with investors who are willing to invest their capital in those ideas in the hope of a stellar financial reward.

What has changed, and in doing so given rise to the equity crowdfunding industry, is the role that technology and the internet are playing in the optimisation of social networks and lowering of transaction costs.

These two powerful changes have opened up traditional and new industries alike to relentless innovation. From the rise of disruptive platforms like AirBnb and Uber in the travel and transport space, to the growing omnipresence of experienced players like Google in our digital lives, it’s clear to see that technology fundamentally changes market characteristics – growth capital markets will be no different.

In this regard, the economic argument supporting the birth of the equity crowdfunding model is simple. The formation of an online network of engaged, financially -savvy and skilled investors will, in conjunction with a professional and regulated framework, attract the highest calibre of entrepreneurs seeking to raise growth capital in the market.

Entrepreneurs’ chances of successfully closing their funding round are increased by the existence of that same network. It follows therefore that investors should be incentivised to form such a network so as to maximise the quantity of profitable opportunities available to them. Moving beyond the dated, opaque, and much smaller personal angel networks of old is crucial to ensure that the transparency, opportunity and scale afforded by equity crowdfunding platforms are fully leveraged.

Couple the soundness of the above economic case with the lasting legacy of the Great Recession and it is clear to see why the equity crowdfunding model is today bringing growth capital markets into the 21st century.

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