• James Tuckett, Managing Director at investUp


• 29.06.2015 01:00 am
crowdfunding

Back in 2010 crowdfunding was a fledgling industry. As with much early stage growth, very little of note happened. Move forward five years and the contrast is startling. Namely the man on the street is starting to take notice and get involved. Of course the media has been playing their part for at least a year, with more and more eulogies slowly appearing in all the mainstream press. As with any new industry, naysayers have also arisen, criticising vast elements of crowdfunding. But it is safe to say that the crowdfunding cat is totally and irrevocably out of the proverbial bag. Crowdfunding is getting serious traction and moving over into the fast lane.

Venture Capitalists overtaken

VC funding is the well-known avenue for businesses trying to raise capital at Series A+ rounds. According to Forbes, the global VC industry invests a figure of around $30bn a year. By contrast a recent excellent report by Massolution projected that crowdfunding volumes would grow to over $34bn in 2015. It’s worth noting at this point that these forecasts have been supported by countless other reports and white papers. In short the crowdfunding industry is doubling in volume each year. Crowdfunding now caters for many different funding models and investor needs. If you’re a saver, you can be a saver. If you are a donator, donate away. Think you can spot the next Facebook, then be an angel. In short - you want it, crowdfunding’s got it.

Angel funding undertaken

Angels have long viewed crowdfunding with disdain. There is arguably an old order disdain here, or as the Manic Street Preachers called it a ‘classes against the masses’ element (or was it the other way around?). But that said this perception seems to be slowly changing. Some crowdfunding sites now only allow raises if the business has an experienced angel on board who can vet and support the business. More often than not, however, we are seeing many ‘angels’ move some of their investing activities into the crowdfunding world. A recent report by the British Business Angels Association not only confirmed this, but showed a growing trend amongst the many younger and more tech savvy angels.

How did this happen?

New industries such as crowdfunding should not happen. The odds are completely against them. Financial giants, regulation, as well as natural trepidation towards risk, do not create a climate were crowdfunding should have developed in the way it has. But it’s worth noting that the ideals of a sharing economy harks back to long before banking. In the modern world the ideals of a sharing economy are represented by a tech driven, personal, touchy feely and ultimately human world, all of which crowdfunding arguably represent. Unsurprisingly these are all things which banking is not well known for. And that’s why it’s also so powerful. We have seen a move by Angels who are starting to use equity crowdfunding as a mechanism. We have seen institutional money (sadly) flood into the P2P sector. We have seen the man on the street start to look towards crowdfunding as a mechanism to boost their savings. And finally we have seen start ups finally get the financial and marketing support they need to grow.

Disclaimer alert

Like with most great arguments, there are holes in what I’ve just written. Crowdfunding, as with Angel investment and VC funding, is simply not a standalone investing technique. There is not an either this or nothing element. For instance equity crowdfunding more often than not works in tandem with VCs and Angels. Crowdfunding fits in perfectly with other funding mechanisms. Crowdfunding is as powerful a tool as the number of new investors who come to the table. And that’s what makes it so powerful. We really are just at the start. The global growth we are seeing in the industry will ensure its impact will continue to grow far above anything, which Angel and VC funding can achieve alone.

Crowdfunding is helping businesses raise cash at a critical part of their life. Whilst marketing and strategic tie-ins may be core reasons why businesses look to crowdfunding for funding, the truth remains that it just is an effective way of testing out your idea, building a company and getting seed stage funding. investUP for instance would never have been able to raise the seed round of funding if we hadn’t raised seed funding on a crowdfunding site last year. And don’t forget the truly exciting fact. This market is brand new. As more and more investors join the crowd, the current positive impact it is having is not even close to where it will be in even two or three years. Power to the people and all that.