2015 was the year crowdfunding came of age. Most notably, we saw the first exit of a business that funded on a UK-based crowdfunding platform, when E-Car Club was acquired by Europe’s leading car rental company, Europcar. The second exit shortly followed when Camden Town Brewery, another business to raise finance on Crowdcube, sold to AB InBev, the world’s biggest drinks company just eight months after raising investment.
As we embark on what I’m confident will be another milestone year for the crowdfunding sector, I wanted to look back at some of the key trends from 2015 and predictions for the year ahead.
Crowdfunding collaborations will be a regular occurrence
2015 was also the year that saw old and new funding models come together as the ‘old firm’ got fully immersed in crowdfunding, with a spike in investment activity from the UK’s leading VCs, such as Index Ventures, Passion Capital and Octopus Investments, just to name a few, investing alongside the crowd in rounds on Crowdcube.
This year, we predict that there will be a further increase in partnerships between so-called ‘alternative investment’, traditional investment and major brands. At an industry level, we’ve already seen Funding Circle team up with Santander and I am certain that we will see more activity in this space as the peer-to-peer industry looks to partner with institutional investors.
This year Crowdcube also teamed up with Amazon Launchpad, an online platform for UK startups, to sell their products, which will also partner with VC groups like Andreessen Horowitz. This signals that big brands are keen to get involved with the booming crowdfunding industry. More people are taking a closer interest in what is happening in crowdfunding and how the industry is operating – and this will continue into 2016.
The sophistication of the crowd will be realised
In terms of investors, the tide is beginning to turn. In 2016, I think we’ll see a real shift in the realisation that ‘the crowd’ are a savvy and sophisticated bunch. In the past, there has been a sense that crowdfunding investors are unsophisticated and follow a herd mentality. It is a misconception I’m keen to dispel and our data shows that the crowd tends to be highly educated, smart individuals who make rational decisions, which is backed up by the large sums being invested on crowdfunding platforms, such as the senior executive at a private equity firm who invested £1m into Sugru.
Bigger businesses will turn to the crowd
Just two years ago crowdfunding was subject to regular scepticism and seen as a last resort for businesses seeking investment, but that has really changed in recent times. No longer a preserve for startups and smaller businesses, crowdfunding is now the first choice for an increasingly diverse range of businesses raising finance.
We’ve done nearly 20 raises over £1m pounds this year, five of which were over £3m, firmly placing crowdfunding as a viable option for Series A rounds.
Already we have more enlightened trailblazing brands like BrewDog, Camden Town Brewery and JustPark, which raised £3.5m this year, the largest round to date on Crowdcube, turning to the crowd as their preferred route to raising finance; this is set to continue.
Investment rounds will get bigger
Along the same vein, as crowdfunding continues to mature, investment rounds will get larger, with the average amount raised on the up. We’ve done nearly 20 raises over £1m pounds this year, five of which were over £3m, firmly placing crowdfunding as a viable option for Series A rounds. As we move into 2016 we are already seeing that it is a trend that is continuing. The natural evolution is to see crowdfunding form part of Series B and Series C fundraising, which we think may become a reality this year, in a move which will further democratise the world of investment.
With growing interest from investors and businesses alike, there is certainly an opportunity for crowdfunding platforms to raise much larger sums. 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.
The current EU Prospectus Directive, however, limits the amount that can be raised to €5m, 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, it would be a real game changer for us and the wider industry.