Companies can now use crowdfunding or other online options to raise equity funds, instead of relying on the more traditional private equity or venture capital options.
According to research by Beauhurst, crowdfunding outperformed both private and venture capital for funding deals in the UK in 2016. Their research has shown an 11% increase in crowdfunding deals in equity funding in non-listed high-growth companies in the first quarter of 2017, compared to the same quarter in 2016.
Crowdfunding is no longer associated with just business start-ups, with investors seeing encouraging returns being made on equity crowdfunding. The second largest crowdfunding platform, Crowdcube, has seen a quadrupling of institutional investors over the last two years and Seedrs now has an exclusive partnership with Natwest, which allows them to provide their customers with an alternative to the traditional funding options.
A crowdfunding campaign is more labour intensive than the more traditional forms of funding. Preparatory work is important, such as having initial backers lined up and it is vital to frequently communicate with potential investors, especially those enthusiastic about that particular product or service.
Seedrs is piloting a scheme which allows investors to sell shares in companies that they have invested in. If successful, other crowdfunding platforms will probably follow suit.
The FCA has increased its regulation over the crowdfunding market and have stated that information to investors has not always been “clear, fair and not misleading” and comparisons with other similar platforms has been difficult. The FCA is expected to increase regulation further in this area.
The European Commission recognised the importance of crowd funding in its report in 2016. Crowdfunding has had a permanent impact on the funding environment and by increasing the opportunities for investors this is a positive development.