Raising money for a small business can be a painful process, as Crowdcube‘s CEO Darren Westlake knows from personal experience. Thanks to Darren and co-founder Luke Lang, however, entrepreneurs can now sidestep the banks and appeal to a crowd of friends, family, customers and strangers for investment.
Launched in February 2011, Crowdcube has pioneered the equity crowd-funding market. In July 2014, they broke a world record when they raised £1.6m for themselves in just 16 minutes. Since then, they have overseen successfully funded businesses including Kammerlings, the E-Car Club and most recently, JustPark.
After a successful 2014 for Darren, highlighted by winning the Great British Entrepreneur Financial Services Entrepreneur of the Year award, we caught up with him, and he told us all about disrupting financial markets, cutting out the middle man and a 100-year-old investor…
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TechSPARK: In 2012, Senior Bank of England policy maker Andy Haldane said online lending could ‘replace banks‘, how does that claim hold up three years on?
Darren Westlake: The big banks in the UK have been incumbent for decades, so they’re not going away any time soon. That said, alternative finance such as crowd funding and Peer to Peer (P2P) lending is starting to make inroads into their markets, and banks have to react to that.
Recently, there have been rumours of Goldman Sachs acquiring alternative finance companies, and we will see that trend continue.
TS: Equity crowd funding is a new area – has it been difficult to steer investors away from traditional methods?
DW: The market for alternative finance has doubled in less than two years – from £267m in 2012 to £666m in 2013 according to Nesta – and equity crowd funding is worth around £84m of this pot. So although the market is still growing, I would say it’s been like a breath of fresh air for investors, especially smaller investors.
“You can put in anything from a tenner upwards, and be part of a fantastic community of like-minded individuals”
Four years ago, you had to be a high net-worth individual or angel investor – someone with plenty of spare cash – to invest in a business you thought had potential. Today you can be part of the crowd and put in anything from a tenner upwards, and be part of a fantastic community of like-minded individuals.
TS: 71% of investments on Crowdcube go to tech businesses, was this your intention when setting up?
DW: We didn’t have a plan to target specific sectors when we set up the business, we just wanted to open up the opportunity for people to invest in businesses in a very different way. We’ve always been keen to present a diverse choice of businesses in different sectors, stage of development and size, so from a Shoreditch start-up to a household name like the Eden Project.
However, tech investments have been popular and represent our biggest slice. Tech and digital startups tend to lend themselves to alternative finance; often they see the benefits of engaging with a large crowd of investors and the exposure that brings, while others have done it before and come back to crowd funding again, or as part of a wider funding round with VCs and other institutional investors.
TS: Crowdcube enables “armchair investors” – who are they?
DW: When started the business four years ago, we imagined how great it would be if 100 or 200 people could each invest small amounts of money rather than one big investor putting everything in. This is the reality today, but these so-called ‘armchair investors’ are actually much more – they put their money where their mouth is and many become deeply involved in the businesses they invest in, taking an active role in their development and growth.
TS: What are investors’ biggest motivations for using Crowdcube?
DW: Crowdcube has effectively democratised investment, removing many of the barriers and stereotypes that exist in traditional angel investment. Our model provides the benefits of angel investing, but makes the whole process much more accessible, affordable and rewarding, without the middleman. Plus, there are no costs for investors either upfront or when the company exits, which is a big motivation.
Investors can put their money into startups and early stage businesses seeking investment, as well as larger, well-known brands – many of which have recently launched mini bonds via Crowdcube. We are determined to remove the inefficiencies, red tape and high costs which are constant nuisances when it comes to raising finance.
TS: Where do the majority of your investors come from?
DW: Our investors come from all over the place – that’s the joy of crowd funding. Today, we have around 155,000 investors registered on the platform, who have helped raise £73m for more than 200 businesses.
Crowdcube successes: The figures show the real potential of crowd funding
In terms of profile, the majority of our investors are between 29 and 48 years of age (54%) although we do have a 100-year old investor, so you’re never too old! Around a third come from the South West and, typically, they like to invest in tech businesses, but also in consumer products and food and drink. On average they invest £2,500, although the largest investment has been £250,000. Last year, 65% of investments came from existing investors.
TS: What has been Crowdcube’s greatest success to date?
DW: Becoming the first and most successful crowd-funding company is definitely up there as one of our greatest successes. We started the company in order to disrupt the traditional financial markets, and change the way small and growing businesses attract investors and raise money through equity crowd funding. I personally experienced the challenges of raising finance and know how tough it can be.
“Our model provides the benefits of angel investing, but makes the whole process much more accessible, affordable and rewarding, without the middleman”
TS: What are the benefits of working in the South West?
DW: It’s great to be a successful company outside of London, although we are spreading our wings far and wide, both in the UK and overseas. People are often surprised when learning that we’re based here, but as web-based company, it doesn’t matter where we are. However, we have amazing offices in the Exeter University Innovation Centre, overlooking the Exe Estuary, so it’s a fantastic place to grow the business from.
TS: Are you currently hiring?
DW: We are and are particularly looking for programmers. We have recently announced some senior hires with amazing CVs, including Bill Simmons, our new CFO who is ex-Myspace and Jeeves. Dean Mayer joined recently as our head of debt and has over 20 years’ experience in global debt capital markets, and Stuart Nicol as growth director who was previously at The Capital Fund and Octopus Investments. Hiring people like Bill, Stuart and Dean is enabling us to further strengthen the business as we continue to expand here and in other markets.
TS: Can you tell us about any future projects?
DW: We have more exciting senior management hires in the pipeline, including a former Silicon Valley-based digital heavyweight. Our future plans include doubling our staff count to 50, expanding the teams in our London and Scottish offices, and increasing the scope of our international operations, which include partnerships to launch Crowdcube in other countries, including Brazil, Germany and Australia.
Many thanks to Darren for chatting with us. If you fancy becoming an armchair investor yourself, check out Crowdcube’s Popular Equity Pitches. On Twitter? Follow @Crowdcube for the latest updates.
Talking of investment, Venturefest is coming to the South West and is looking to show off the amazing products and services being created in the Bristol and Bath region to potential investors. See Venturefest Bristol & Bath for more or keep up with the latest Venturefest news by following them on Twitter here: @venturefestbb
