The recent announcement from Crowdcube of the world’s first successful crowdfunding exit marks a notable development in the crowdfunding industry. The sale of E-Car Clubs, the UK’s first entirely electric car sharing club, to Europcar has ensured that those 63 investors who helped raise £100,000 worth of investment through crowdfunding in 2013 will receive a “multiple return” on their initial investment.
Whilst the first exit of its kind, it is unlikely to be the last. As the industry continues to grow and with many investors investing in various different businesses through crowdfunding, it is only a matter of time before we see more successful exits.
There has been a steady rise in the number of equity crowdfunded investments since interest in crowdfunding in the UK started to soar in 2011, with £24 million of equity crowdfunded investments being raised in the first half of 2014 alone.
It is not only the investors and successfully funded businesses who have benefitted. Crowdcube has asserted itself as one of the leading crowdfunding platforms in the UK, having successfully raised in excess of £94 million and helped fund over 270 businesses thus far. Most notably, it is equity crowdfunding that has begun to emerge as the most popular method of crowdfunding, and which was responsible for £84 million of the alternative finance market in 2014.
What is equity crowdfunding
Equity crowdfunding ensures that in return for an investment, investors are offered shares in the company. As one of the fastest growing types of crowdfunding, which can be seen through its use on well-known crowdfunding platforms such as Crowdcube, Seedrs and Squareknot, it allows professional investors and individuals to get involved. Currently the average investment per individual on each of Crowdcube and Seedrs platforms per crowdfunding campaign is £1890.71 and £1089 respectively.
Help for seed stage businesses
Of the various effects crowdfunding has had on the finance market, most profoundly it can be said that it has boosted the availability of funding for businesses at ‘seed’ stages. A business start-up at seed stage often requires funding in order to support product development, generate initial investor interest and manage both administrative and marketing costs.
Seed deals which benefitted from crowdfunded investment accounted for 32% of UK seed-stage deals in 2014. In fact, it would appear that almost by definition and having provided increased accessibility to the ‘crowd’ to invest at relatively low costs, crowdfunding has enabled seed stage investment to grow.
The future of crowdfunding
It is clear that crowdfunding will continue to be a main source of investment both in the UK and globally. It is predicted that by the end of 2015 around half of seed stage investment deals and 20% of venture capital investment stage deals will have involved crowdfunding platforms.
While for many, including the investors of E-Car Clubs, crowdfunding will result in a lucrative investment, that is not to say it is without its risks. There is often talk, given the number of businesses now crowdfunding that we are likely to see a crowdfunded business fail, however in the meantime, it is another boost for the alternative finance market to see its first successful crowdfund exit.
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