The onset of Crowdfunding
Crowdfunding has been slowly but steadily evolving in Europe for the past few years. The financial crisis that hit European countries in the early 2000s has led to curtailing of banks in lending to Small and medium scale enterprises (SMEs). Thus, creating a huge supply and demand gap in the capital markets.
Banks, in theory, should be able to use the economic excess in places where it is useful in the economy. Whereas these risk-averse firms stay clear of financing SMEs.
As a result, alternative finance methods have evolved, globally. Although some legislation in the UK enable SMEs to seek finance overseas, most venture capitalists and angel investors fund in their localised networks or stay national.
This has lead to the evolution of crowdfunding on a bigger scale. Crowdfunding has doubled to 2,700 from 2013 to 2014. It barely existed in 2009 and is a growing market now. This is solely because of the ease in which the connection is made between the investor and the SME.
There are many crowdfunding platforms or websites available in the market presently. To mention a few major players in the market:
Seedrs: It is one of the leading equity crowdfunding platforms in the UK. Seedrs raised £ 1.4 million in 27 campaigns in their first year. Some notable campaigns were NearDesk and PixelPin.
Crowdcube: It is one of the fastest growing equity crowdfunding platforms in the UK. Escape the City raised £600,000 in 12 days; they turned down lucrative offers from 2 venture capitalists. E Car Club (a club for electric cars) raised £100,000 from just 62 investors.
Crowdfunder: this is a rewards-based crowdfunding platform. The Hugh Fearnley-Whittingstall’s FishFight and LandShare campaigns were organised here. They are an expert in creative and community projects; “Crowdfund the future” is their mission.
Buzzbnk: this is a crowdfunding platform with a different vision. They find funds for social or environmental projects. This platform allows investors to invest in return for goods or services, or as a loan. Investments can also be a combination of goods, services and loans. Pants to Poverty was funded through this platform.
BloomVC: Bloom Venture Catalyst is the only crowdfunding platform in the UK that allows any sort of a project, regardless of whether it is commercial or social; it can be a project, charitable venture, or an idea. They dedicate an advisor/manager to help you with your campaign.
All these sites simply help you create a campaign and raise funds. Seems simple! It’s the simplicity that attracts many start-ups to this type of a funding method.
This growing branch of capital markets has helped many new ventures. Even though traditional financing methods still remain the most popular in the UK, the hassle-free nature of this fundraising branch attracts both investors and entrepreneurs. The International Organisation of Securities Commissions (IOSCO) has estimated crowdfunding to reach a $96 billion a year by 2025. Now, this is a global number. In the UK, however, crowdfunding is still evolving; owing to legislative restrictions, non-traditional funding methods are yet to be prominent.
It is expected that the alternative financing market will grow drastically in the next few years.
The future matters
UK’s crowdfunding market is set to grow in the next 10 years. The capital market in the UK is seeing a mild shift towards including other types of financing that is not banks and equity. This is will be a boon to start-ups because they will be able to find people who will back them if they feel the start-up has potential to grow.