Luke Lang and Darren Westlake launched Crowdcube to provide a different funding mechanism to help small businesses start up and grow. Put simply, the site enables UK-based entrepreneurs to raise venture capital for their business, by getting investment from ordinary people in return for equity.
The first year results have taken even the founders by surprise. "When we launched we were conscious that we were introducing a radical new mechanism, so we estimated that we would fund one deal in the first year and that deal would be worth around £50,000," says co-founder Luke Lang. "So to do 11 deals for close to £2.5m shows there has been a pent up demand and a funding gap that has been under-served for a long time."
Small businesses are being forced to seek out alternative funding as it gets harder to secure bank loans. "I think it has been widely documented that project Merlin has not been as successful as it could have been and it highlighted the fact that there isn't the cash flowing into the businesses from banks and there is a real need for alternative routes," explains Lang.
Crowdcube was the first crowdfunding website in the world to give members of the public access to investment in UK start-ups. "We think crowdfunding is all about democratisation and being inclusive rather than exclusive, we believe everyone should have the right to invest in great British businesses," says Lang.
There are currently 8,901 registered investors - they include members of the public with savings to invest in something they believe in as well as high net worth individuals.
Westlake says the platform attracts a mix of "armchair dragons" and traditional business angels. "The more people who invest using sites like ours, the more small businesses will find the finance they need to start up or grow. The emergence of alternative sources of business finance, like crowdfunding, is already proving to be popular for both entrepreneurs and investors."
The average Crowdcube investment by a single investor is £1,854, the smallest amount £10 and the largest is £100,000. Lang says investors like the fact they can spread their investments. "The appeal for them is that they can really start to spread their worth across businesses. They can invest £10,000 in ten projects rather than £100,000 in one project," he explains.
Entrepreneurs, on the other hand, like benefiting from a variety of experiences. "If you have 100 investors you have a much broader variety of skills you can tap into rather than a single investor. Business owners like the idea of having many small investors rather than one big one that can come in and meddle in their business," says Lang. "Investors act as advocates of their business and they become real stakeholders and they can spread the word for them.
Gem Misa, the founder of Righteous, a producer of natural salad dressings, says Crowdcube goes beyond funding alone. "It is a fantastic opportunity to use the power of the crowd to spread the word and build the brand at the same time. We are finding that the investors we have attracted through crowdfunding are interested for the right reasons because they love our product and they genuinely believe what Righteous is about," she says. "In a way we are gaining more than just investors. We are gaining a group of supporters who can tell people more about our products."
Through helping small businesses to grow Crowdcube also helps to create jobs and strengthen the economy. They estimate that over the next three years 246 jobs will be created as a consequence of funding obtained through crowdfunding on the site.
Companies who have benefited from the investments include Big Barn, a local alternative to supermarkets and Bubble & Balm, a fair-trade body care company. Proving the point of the concept Crowdcube raised £300,000 in just ten days to fund its own expansion just before Christmas. Currently there are 38 companies seeking a total of £6.2m.
As for this year the ambitions are set much higher. "Our aim is to try and do £1m worth of deals per month, so rather than doing £2m in a year we'd like to do £12m," says Lang. "We think there is a real gap in the market for what we are doing and we are positioning ourselves to try and exploit that gap and provide a really valuable resource for small and growing businesses. "
Join Crowdcube co-founder Luke Lang for a webchat on crowdfunding on Thursday 23 February at 12pm. For more information click here.
To find out more about Crowdcube click here, www.crowdcube.com