Posted on Feb 11, 2014 by Sandy Finlayson | Tags: crowdfunding, funding, finance, banking, lending, startups, SMEs, alternative finance market, | 0 Comments
Background
Emerging in response to a tight lending market and global capital shortfalls, and facilitated by the internet, crowdfunding has grown exponentially in the last five years. This Briefing Note gives some detail as to how big it is, how fast it is growing, how it is organised, and the response of the UK’s financial and regulatory bodies.
Scale and scope
(Source: NESTA)
(Source: NESTA)
(Source: NESTA)
Crowdfunding – how does it work?
Type of crowdfunding |
Key aspects |
Sums raised (2013) |
FCA Regulation from April 2014? |
Donation–based crowdfunding/Peer–to– peer online fundraising |
No legally binding financial obligation incurred by recipient to donor; no financial or material returns are expected by the donor. Example: Bloom VC. |
£310m |
|
Peer–to–peer lending |
Debt–based transactions between individuals; most are unsecured personal loans. |
£287m |
|
Peer–to–business lending |
Debt–based transactions between individuals and existing businesses who are mostly SMEs. |
£193m |
|
Invoice trading |
Firms sell their invoices or receivables to a pool of individual or institutional investors; often involves an auction and buyback. |
||
Equity–based crowdfunding |
Sale of registered security by mostly early–stage firms to investors. Example: Crowdcube, ShareIn. |
||
Reward–based crowdfunding |
Donors have an expectation that recipients will provide a tangible (but non–financial) reward or product in exchange for their contribution. |
£20.5m |
|
Debt–based securities |
Lenders receive a non–collateralised debt obligation typically paid back over an extended period of time. Similar in structure to purchasing a bond, but with different rights and obligations. |
£2.7m |
|
Revenue/Profit sharing crowdfunding |
Issuers incur an obligation to repay lenders, but these payments are variable and a function of the revenues or profits of the firm. |
£1.5m |
|
Microfinance/Community Shares |
Microfinance refers to the lending of small sums to entrepreneurs who are often economically disadvantaged and financially marginalised. There is a debt obligation incurred, but the amounts lent are very small. Community shares refer to the sale of shares in social enterprises serving a community purpose in a particular locality. |
£0.8m |
Business models
Within crowdfunding itself – and separately from proposed FCA regulations – there are a variety of business models.
1. Money for business ventures
As the market is expanding so quickly the following tables are illustrative rather than comprehensive and anyone contemplating this type of finance should conduct a detailed Internet search.
UK |
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Name |
Funding |
Focus |
Country |
Notes |
Angels Den |
Equity, Donations, Loans |
All businesses |
FCA Regulation coming in April 2014 |
|
BankToTheFuture |
Equity, debt, rewards |
small businesses and new start-ups |
FCA Regulation coming in April 2014 |
|
CrowdCube |
Equity and rewards |
start-ups, small businesses, growing businesses |
FCA Authorised. Has formed a ‘crowdfunding fund’ managed by Braveheart Investment Group. |
|
Funding Circle |
Small businesses |
FCA Regulation coming in April 2014 |
||
LendInvest |
Debt/loan |
Property Development Entrepreneurs/ Mortgages |
First live peer-to-peer lending platform specifically for residential and commercial mortgages |
|
rebuildingsociety.com |
All businesses |
|||
Relendex |
Property |
Lending exchange for commercial property. |
||
Seedrs |
Equity |
Seed-stage businesses, Investments from £10+ |
UK & Europe |
First equity crowd funding platform to be approved by the FCA. |
Seedups |
Equity |
Early stage tech-start-ups |
UK, Ireland, USA & Canada |
|
Share-In |
Equity |
Early stage companies – tech and health |
FCA approved. Holoxica just reached its target. It’s an Edinburgh University spin-out. |
|
Square-Knot |
Equity and debt |
All companies, including those “squeezed” by banks. |
||
ThinCats |
Small businesses |
FCA Regulation coming in April 2014 |
||
Unbound |
perks |
Books |
Acts as both a crowdfunding platform and a publisher. Launched Terry Jones' Evil Machines, the firstbook to be financed by crowd funding. |
|
By some margin the largest non-donation/reward crowdfunding platform of any sort in the UK; FCA Regulation coming in April 2014 |
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Rest of World |
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Name |
Funding |
Focus |
Country |
Notes |
AngelList |
Equity, debt |
Start-ups |
Currently serves accredited investors |
|
Bolstr |
Revenue share |
Small businesses |
Able to operate now, pre-JOBS Act (US equivalent to FCA regulation over here) |
|
CircleUp |
Equity |
Consumer products and retail |
Currently serves accredited investors |
|
Companisto |
Equity |
Germany |
||
EarlyShares |
Equity |
|||
Fundable |
Equity |
Seed stage businesses |
||
FundedByMe |
Equity and rewards |
Entrepreneurs |
Sweden, Finland, Norway, Italy, Germany, Denmark |
|
Gambitious |
Equity |
Game development |
Netherlands |
|
Innovestment GmbH |
Equity auctions |
Germany |
||
Invesdor |
Equity |
Start-ups and growth companies |
Finland, Sweden, Denmark and Estonia |
|
InvestedIn |
Equity |
|||
Kopernik |
Other |
3rd world issues |
||
Lending Club |
Equity/loan |
|||
MicroVentures |
Equity |
Tech Start-ups & High Growth |
Currently open to Accredited Investors |
|
Prosper Marketplace |
||||
Rock The Post |
Equity |
Early stage tech-start-ups |
||
SecondMarket |
Equity, debt |
Late stage start-ups and privately held companies at a pre-IPO or pre-acquisition stage |
||
StartupValley |
Equity |
Technology start-ups and businesses |
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