CrowdCube

Crowdcube

Web address	www.crowdcube.com
Commercial?	Yes
Type of site	Crowd funding Corporate finance Equity (finance)
Launched	February 2011

Crowdcube started as an equity crowdfunding platform that allowed people the chance to buy equity in unlisted UK registered businesses in exchange for their investment. As of June 2014 ^[1] Crowdcube offers investors two types of investment opportunities, equity (a stake in a company) and mini-bonds (lending money).

Developed as an alternative to banks, business angel or venture capital funding, start-ups can use the Crowdcube platform to raise business finance from "The Crowd"^[2] to find investment. Crowdcube was cited by the policy maker at the Bank of England as a contributing factor to making the banks obsolete and that “the impact of these firms could be revolutionary. At present, these companies are tiny. But so, a decade and a half ago, was Google.”^[3]

In February 2013, Crowdcube became authorised by the Financial Conduct Authority (FCA).

Crowdcube was established by Darren Westlake and Luke Lang and is based at the Innovation Centre at Exeter University. Westlake stated in an article that he was inspired by “seeing great ideas fall by the way side^[4]” on Dragons’ Den.

Model

Equity based crowd funding is a new model for raising funds for entrepreneurs. The ‘crowd’ pool small or large amounts of money and entrepreneurs are able to bypass business angels and banks, to secure funding directly from the general public.^[5]

The key principles of this model are that anyone should be able to invest money in a business and get equity in that business. Entrepreneurs with a UK registered company can showcase their business and investment potential to thousands of micro-investors, ordinary people, by uploading a Dragons Den style video pitch, images and supporting documents. These micro investors can invest in any business of their choice for as little as £10.

Crowdcube operates on the "all or nothing" model, when a pitch reaches its target, the business receives the funding raise, if it doesn't reach the target then no funds are taken from investors and no money is charged. A 5% or more commission is charged on a successful funding campaign. But commission can be negotiated.

The platform utilises social media to a large extent to alert potential investors about the offering. In March 2015, the Financial Conduct Authority released new guidance on the use of social media to promote financial products and these have been described as "a minefield" ^[6]

Crowdfunding as a model of fundraising has become more popular over the past few years with the rise of the US based Kickstarter and Indiegogo. These platforms differ from Crowdcube as they work on a "reward" based model where the funder receives a DVD or piece of artwork in return for their contribution.^[7]

Regulation

In February 2013, Crowdcube became authorised by the Financial Services Authority (FSA) after submitting its application for authorisation in December 2011. The authorisation made Crowdcube the second regulated equity crowdfunding platform in the UK after Seedrs^[8] to allow investors to become direct legal shareholders in UK businesses.^[9]

Successful Exits

In July 2015, E-Car Club, an electric vehicle rental business championing the future of the green sharing economy, produced a world first exit from the CrowdCube 'Funded Club'. ^[10] E-Car received a significant investment from Europcar, Europe's largest vehicle rental business. ^[11] E-Car club has joined the newly formed Europcar Labs project, which has been set up by CEO Philippe Germond to focus on 'mobility solutions'. ^[12] This is Europcar's first acquisition since its IPO on the Euronext in early June 2015.^[13] 63 original investors in E-Car Club via Crowdcube benefited from a multiple return on their investment.

In December 2015, it was announced that Camden Town Brewery was being bought by the world's largest brewer, Anheuser-Busch InBev. In a letter to CrowdCube shareholders, AB InBev were offering a payout of between £1.0861 and £1.2526 per share^[14], depending on whether they accept an option with a variable element based on sales growth to be paid at a later date. Reports said this was a nominal return on investment of just under 70%, implying that AB InBev paid around £85 million.^[15]

Funded Campaigns

Equity

Equity pitches hosted on Crowdcube offer investors the chance to own a proportion of the business in exchange for their investment. Some examples of companies that have acquired funding using this method are as follows:

Mini-Bonds

Mini-bonds allow members of the public to lend money to the issuing company in return for interest and / or rewards. Mini-bonds have “particular appeal for established businesses”.^[33]

In June 2014 Chilango launched Crowdcube’s first ever mini-bond campaign. Since then a number of other businesses have launched mini-bond offerings via the Crowdcube platform. Some of the businesses that have funded bonds via Crowdcube include:

Caterham F1

In November 2014, Crowdcube partnered with Caterham F1 to raise £2.35 million to get the team to the final Grand Prix of the season, Abu Dhabi.^[38] Designed to empower F1 fans to help Caterham return to race, the project successfully completed on the 14th November,^[39] with Caterham F1 finishing in 17th place with Grand Prix newcomer Will Stevens.^[40]

Investor Motivations

In 2012, Crowdcube surveyed investors to better understand their behavior. Investors were aware that most small businesses fail and they therefore spread their investments. They also invested in companies they felt an emotional attachment to.^[41] The research highlighted that investor decisions are driven by the business' idea, its market potential and entrepreneur's experience.^[42]

The Crowdcube approach seems very well suited to businesses which have some aspect of a club or association to them where investors feel they are involved beyond just owning shares. The craft beer producer BrewDog has been particularly successful inoffering beer rewards to investors and by fostering start-ups in their bars ^[43]

Recognition

Crowdcube were nominated as one of the Top 20 Start-ups of 2011 by Startups.co.uk^[44] and are No.11 in the Startups 100 2012^[45] Crowdcube were also awarded the Smarta 100 Award in 2011.^[46]

Press Coverage

In May 2012, Crowdcube was accused of misleading investors by showing a conditional grant from the UK Technology Strategy Board as an “investment.” In response, Crowdcube modified their practices to show only funding from site investors during a pitch’s progress.^[48]

See also

• Comparison of crowd funding services

References