Luke Lang, co-founder of investment crowdfunding platform, Crowdcube, takes a look back at what happened this year in the world of funding and gets out his crystal ball for 2016...
In January we made some predictions for this year and feel pretty confident that a number of them came true. Most notably we predicted that the 'old firm' would stop flirting with crowdfunding and get fully involved. 2015 was a real game changer in that sense.
In addition to leading institutional stockbroker Numis Securities, Draper Esprit and Balderton Capital investing directly in Crowdcube this summer, we’ve also seen a spike in investment activity from other VCs and institutions, including the likes of Altis Investment Management, BM Capital and Index Ventures, Passion Capital and Octopus Investments, having now participated in rounds on Crowdcube. It looks like a growing trend that’s set to continue, in a move, which has seen ‘old’ and ‘new’ funding models collaborate rather than compete.
We also predicted that more well-known brands would choose alternative routes to finance. In previous years, we’ve seen companies like the Eden Project [left] and River Cottage turn to the crowd to raise finance, and 2015 was no exception with Camden Town Brewery as a great example of this.
But what we have also seen is a shift towards more established businesses led by entrepreneurial teams that have held executive positions and/or founded household names, such as Innocent Drinks, Amazon, e-Bay, ASOS, Zoopla, Gumtree, MTV, Made.com – the list goes on.
Interestingly, we also predicted that entrepreneurs behind some of the UK’s crowdfunded businesses would take this year as an opportunity to make an exit. 2015 did in fact become the year when E-Car Club – which raised £100,000 from 63 investors on Crowdcube in 2013 – was acquired by Europe’s leading car rental company, Europcar. In crowdfunding terms, this was the first exit for a UK platform and an important milestone in the industry, which further supports the idea that crowdfunding has come of age. Another significant point about E-Car Club is that it attracted two investors that hold senior positions at global banks, and others working in private equity, and this bridges nicely to predictions for 2016.
The crowd gets even smarter
Crowdfunding has seen a real shift this year, with more people taking a closer interest in what is happening and how the industry is operating – and this will continue into 2016. One realisation will be that ‘the crowd’ is much more sophisticated and a lot smarter than people give them credit for.
In the past there has been a sense that crowdfunding investors are unsophisticated, irrational and follow a herd mentality, when in fact our data shows that the crowd tends to be highly educated, smart individuals who make rational decisions. This will be backed up by individuals investing very large amounts of the kind we saw this year when one senior executive at a private equity firm invested £1m into Sugru.
Investment rounds will get bigger
As crowdfunding continues to mature, investment rounds will get larger, with the average amount raised going up. We’ve done more than 20 raises over one million pounds this year, firmly placing crowdfunding as a way to secure Series A funding. That trend will continue and we may see crowdfunding become part of more Series B and Series C fundraising. Made.com, for example, raised £30m this year through institutional and VC funding, but an ambitious, high-growth, online business like this could so easily include an element of crowdfunding within its investment plans, helping them to better engage with their community and customer base.
There is certainly an opportunity for crowdfunding to raise much larger sums. The current EU Prospectus Directive, however, limits the amount that can be raised to five million Euros, which remains a limiting factor in the industry. But with a current consultation going ahead on this, we may see the figure double and, if so, would be a real game changer for us, and the wider industry.
Bigger firms see the light
Two years ago crowdfunding was often the subject of scepticism and criticism within traditional investor circles, but that has really changed in recent times. Attitudes among well-known brands and bigger companies will also evolve. I predict that crowdfunding will reach a critical turning point and become more of a mainstream option, rather than a form of 'alternative investment', and one that works well combined with other forms of funding. We already have more enlightened trailblazing brands like BrewDog, Camden Town Brewery and JustPark, which raised £3.7m this year, the largest amount ever on Crowdcube, making crowdfunding their first choice source of fundraising; this is set to continue.
Partnering will be key
Next year there will more partnering between so-called alternative investment, traditional investment and major brands. Funding Circle has partnered with Santander already, and I am certain that we will see more activity in this space as in the peer-to-peer industry looking to team up with institutional investors. This year Crowdcube also teamed up with Amazon Launchpad, an online platform for UK start-ups to sell and market their products, which will also partner with VC groups like Andreessen Horowitz.