Saturday, 30 May 2015
The times they are a'changin. There are a noticeable number of larger raises on Crowdcube from companies at the cutting edge of their sectors.
Back in 2011/12/13, most of the businesses raising money via equity crowdfunding were small start ups in consumer goods and services and the internet. That phase has been unsuccessful in that no single company has managed to return a penny to investors. Amounts being raised were averaging £50k to £250k - nothing above £500k. Equity on offer tended to be generous but then 40% of nothing isnt worth more or less than 4% of nothing.
Now the likes of Pavegen, Justpark and Sugru are all looking for around the £1m mark and selling in the region of 4% of their companies. So why the change?
None of these companies can sensibly be valued today at the price tag they give themselves but they are still a better bet than the Crowdcube class of 2011/12/13 and 14. You cant get rich buying an early growth company's shares at values of £50m upwards but you might at least see your money back. That's certainly more than anyone on Crowdcube can say today.
For the founders this is simply easy money for very little equity. All of the companies above have great products; all totally unproven as money generators. We believe that VCs, who are already involved in these companies, are pushing their companies towards equity crowdfunding to raise easy money before ramping up the company for expansion. Why would they give up what is a free offer of say £1m plus free PR and a cohort of 1000 plus supporters, for a much smaller percentage of the company than another VC would demand were they to approach this market. In 2011/12 and 13 it was pretty well unheard of for pitches to be involved with already signed up VCs. Now the VCs seem to be running the larger ones. Its akin to the canny pub chains creating 'local' 'organic' 'independent' brands to fool the public. The Crowd will find playing with these professionals a painful experience.
For Crowdcube itself, the need for some good PR is paramount - that's good PR not the rubbish they make up. These high profile companies are more likely to succeed than the restaurant chain or craft brewer but are they more or less likely to make money for investors. We cant see either achieving this objective but we are happy to be wrong.