We often come up with the best solutions when we need to solve our own problems. Darren Westlake faced a classic entrepreneur’s struggle: trying to fund his business.
The clunky supply-and-demand issues in the funding scene made Westlake think: what if we could give anyone the opportunity to be an angel investor?
Darren Westlake founded Crowdcube, the world’s first crowdfunding platform, which allows companies to raise funding by offering real equity in return for small investments. When the platform was launched in February 2011, Kickstarter was already in the race, but still considered a digital outlier. Crowdcube was the first to apply the concept to business. Westlake and co-founder Luke Lang wanted to make finance more easily available for the early-stage businesses that banks and VCs tend to avoid.
“We didn’t know where it was going to go. Keen to have that first success, we funded our first business in July 2011; that was a breakthrough moment,” Westlake tells Real Business.
This first success was Bubble & Balm, a bodycare company trying to reach the next level. They raised £75,000. Since then, Crowdcube has funded 25 businesses, from consumer products to financial services.
“Finance is pretty dire at the moment, isn’t it?” says Westlake. “Because of the turmoil of the last few years, banks have to be even more careful about risk, and that is translated into less lending to the early-stage and start-up businesses that we deal with.”
VCs can afford to be selective; so many businesses are looking for capital. Amid all the demand, many high-potential companies are left behind.
“I think that money is available; there’s just a lack of appetite for risk to invest in the kind of companies we want to help. We’re not trying to replace the banks, the VCs, the angels; what we’re trying to do is give them another option.”
Crowdcube’s “alternative angels” are investing on the platform for different reasons: some are heartwarmingly altruistic; others are demanding and serious. Businesses calling for finance are often supported by their own friends and family, whose small investments of a few hundred pounds each add up to a usable amount.
Others are strangers who feel drawn to the business model or product, and genuinely want to help it get off the ground. They might not read the business plan and only give £50, but they show valuable support.
The third element of the Crowdcube network are individuals wealthy enough to be angel investors. They invest because they have read the business plan, looked at the financials, and calculated the likelihood of an exit. They figure that their £1k investments might earn them £10,000 back in a few years’ time.
Crowdfunding is often looked upon with scepticism, the risk of it much discussed and frowned upon. But the beauty of Crowdcube is its transparency, which builds the trust investors have in the businesses they fund.
“You can’t really hide – if you put yourself up there as a business to invest in, then your full details and background is on it, you’re exposed, people can do their own due diligence on you. You will likely be grilled by the investor base in our discussion forums,” says Westlake.
The amount of information available on the entrepreneurs and their businesses is significant. It’s a hallmark of this new way of investing: you might not even read the business plan, but if you care about the quality of the business and its team, then you’ll find answers.
“People have a direct relationship with the venture they invest in. In any kind of traditional investment, such as hedge funds, you’ll likely never speak to the business owner, often don’t even know where your money is going. In crowdfunding, you’ll know everyone involved by name, you’ll probably speak to them on the phone or meet them.”
Crowdcube itself is a team of seven, based in Exeter. The team has raised more than £4m in capital. Plans for new projects are present; Westlake mentions plans to develop a loan product suitable for early-stage businesses.
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