Playing by the book
Annabel Denham talks to CrowdBnk founder and chief executive Ayan Mitra about plugging the SME funding gap and the importance of regulation in a new industry
CROWDFUNDING appears to be experiencing an interminable growth spurt. According to Nesta, the UK alternative finance market grew by 91 per cent between 2012 and 2013, and crowdfunding represented the largest segment, reaching £310m in 2013. Ayan Mitra founded CrowdBnk in 2013, following 15 years in the corporate world. He tells City PM about the importance of bridging the gap between investors and small businesses.
How do you explain the recent rise in crowdfunding activity?
Back in 2011, Legal & General’s Tim Breedon said that the government urgently needed to boost alternative sources of capital to plug the funding gap faced by small businesses – which he estimated will be around £59bn by 2016. The Breedon Report proves that viable businesses could create jobs and grow and add value.
Access to good investments for normal investors was previously marginal, because of the way that intermediary financial institutions worked. So what’s also been important is the democratisation of investment. Private investment models were very restrictive, and your Average Joe simply couldn’t gain access to exciting investments because he or she didn’t have the £100,000 needed to get in.
The retail element is important because it brings new capital into play. Crowdfunding gives people the opportunity to invest in projects they are passionate about via an easy-to-use investment platform, and with the transparency of appropriate regulatory approval.
What sets CrowdBnk apart from other platforms?
We want a sustainable market, where SMEs can get access to capital and investors can make money in the long run. We’re trying to marry best practice with technology to improve the chances of return for our investors, and that has led to us doing two things differently.
First, we take our due diligence to another level. We go beyond fact checking to corporate structuring and effectively try and price the risk as best we can.
Secondly, we go up alongside all the businesses that raise money on our platform and take a portion of the risk. Why should anyone else put money into a business if we’re not willing to do the same?
How do you expect the crowdfunding landscape to develop over the next decade?
It’s an incredibly exciting time. In the beginning, many people thought crowdfunding was a fad. But the industry has been here for around five years and its growth shows no signs of slowing. A World Bank survey, for example, forecast that the industry could be worth $125bn (£81bn) globally by 2025. But it doesn’t come without its risks – and like any other industry, we have to be careful. We have to make sure it remains sustainable for both sides of the marketplace. But there are certain things we can do together, as an industry, to mitigate some of the risk. In 2013, for example, the first 12 platforms got together to form the UK Crowdfunding Association. It’s helped establish credibility in the marketplace.
What hurdles did you encounter in setting up CrowdBnk?
We wanted to go to market with a retail proposition from Day One, and we wanted to be regulated from Day One. As a result, it took a long time to bring the then-Financial Services Authority round to the fact that we were playing by the book. But the Financial Conduct Authority (FCA) has been both proactive and open-minded regarding alternative platforms. And we looked closely at the Jobs Act, and in our initial approach took inspiration from what the Securities Exchange Commission was doing in the US, so our business already complied with the FCA’s new rules [implemented in April 2014] for crowdfunding firms.
What’s been the most exciting project to come onto your platform?
All projects on CrowdBnk are exciting, but my personal favourite is Breezie, which raised funds on CrowdBnk last year and which has subsequently secured venture capital funding. It creates software that lets older people access the internet more easily. They raised £600,000 with us and even my mother has one on order. There’s no validation like your own!
DIARY OF A CROWDFUNDER
A win-win: The joys of being overfunded
As I write, 1,833 people have invested in my business. To our surprise and delight, it puts our equity crowdfunding campaign on Crowdcube into record-breaking territory – more than doubling the previous highest number of investors in a campaign on the platform.
Meanwhile, we are on tenterhooks while watching the other crucial number on our “pitch page” on Crowdcube’s website: the amount of investment that we have raised. It’s £1.3m and rising.
Equity crowdfunding, led by the two major platforms, Crowdcube and Seedrs, is helping companies like mine to raise finance by selling shares to the public for as little as £10.
We hit our £1m target four days after launching, erupting in celebration as we watched the ticker on a projector cross that magic threshold. The number is still ticking upwards – and the table tennis table is still sticky with Cava.
The adrenaline is still flowing, and any nervousness has been replaced with relief.
From here on in, we are in the stage called “overfunding”: raising more than our initial target, so that we can build a bigger company, and faster. We’re impatient to get down to work – so we can make the most of this opportunity for our investors. This is my second investment round. The first was with Index Ventures in 2014, and now in 2015 with the crowd.
Fundraising can be a distraction – I have no desire to do it again any time soon. And so we’re making the most of this one: fielding media enquiries, planning an investor event for tonight at our offices, and trying to keep up social media abuzz.
I spend my time in the “forum” on our pitch page. My job is to carve out answers to the countless questions that pop up, day and night, from prospective investors from Europe and beyond. Some come in from sophisticated angel investors and cover questions about share classes, liquidation preferences, or pre-emption rights. Some are from JustPark customers, many of whom are investing in a startup for the first time.
We are even seeing emails flood in from bankers and entrepreneurs dotted around the world, interested in putting in larger sums.
But we try to stay focused on business as usual: reviewing our latest figures, holding the interviews that will help us to grow, and supporting our users with their enquiries. But the amazing thing is having this punctuated with a cheer each time another big investment comes in!
With crowdfunding, you never know until you know. This was an experiment, and one we were thrilled BMW and Index Ventures have supported us on. In the most crucial respect, it remains an experiment, but with a bold hypothesis: by involving thousands of people in our business as shareholders, we will have thousands of evangelists telling their friends about JustPark at dinner parties, down the pub and on social media – and using us when they need to park. We think that will be a win-win for everyone: BMW, Index Ventures, and all of our new shareholders.
We believe this record-breaking crowdfunding will let us take our company to the next level. And by “us” I mean (time to hit refresh) all 1,840 of us.
For an update on JustPark’s ongoing crowdfunding, head to www.justpark.com/invest.
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