Crowdcube and the equity finance revolution: the funding solution for start-ups?

I recently met the founders of Crowdcube PLC (which owns and operates http://www.crowdcube.com) (“Crowdcube”) in Exeter to discuss their business. The founders, Darren and Luke, are two serial IT entrepreneurs in their thirties. Crowdcube looks set to have a significant impact on the provision of finance for start-up companies.

What is Crowdcube?

Crowdcube is a revolutionary new way for UK private companies to raise finance and investment which seeks to harness the wisdom of crowds. The service gives entrepreneurs the ability to pitch their investment opportunity online to get funding from ordinary people in exchange for equity and a share in any future success, both from dividends and a capital gain. The site is free to join and the man in the street can invest in increments of £10 up to a maximum of £5,000. Only those who self-certify themselves as ‘high net-worth’ individuals can invest amounts above £5,000.

Traditional methods of raising equity finance for businesses are notoriously difficult and financially prohibitive for many start-ups. There is currently a real funding gap in the economy as the existing venture capital industry doesn’t focus on new businesses and will rarely consider an investment of less than £1 million. They prefer to invest in established companies with existing revenue streams rather than innovative start-ups where there is more risk, but also where fast growth and large returns are more likely. Innovation in the economy is curtailed as investment decisions are based on historical performance rather than the potential of new disruptive technology and business models. Crowdcube hopes to solve this problem. Crowdcube’s pioneering new equity-based crowdfunding service is set to challenge conventional ‘business angel’ and venture capital funding models and make the task of raising business finance far more accessible and cost effective.

Although there has been a lot of talk around the world about developing online crowd funding models, Crowdcube appear to be the first to have successfully navigated the existing financial services regulations to produce a legally compliant service. Since Crowdcube started being developed in late 2007 their business model has been subjected to rigorous legal scrutiny and the legal framework that underpins Crowdcube has been developed in partnership with Ashfords LLP’s financial services team. Crowdcube’s website has also been approved as a Financial Promotion by Bishop Fleming, FSA authorised Chartered Accountants. 

Launch

Crowdcube are planning a national press campaign and to formally launch at the end of this month. Hopefully the service should take off and the site could really boost economic growth in the UK.