Back in January 2015 I wrote a piece with the headline “Finally, crowdfunding witnesses its first exit deal”. Despite that being technically true, that transaction was laced with caveats. When Mill Group Residential used SyndicateRoom to raise £2m, it wasn’t conducted so it could invest in a sales team, or build new technology, or launch into new markets – rather it was simply to fund an IPO.
Furthermore, the business serves as a “mainstream, buy-to-let real estate investment trust specialising in residential property” – not exactly entrepreneurial.
This website has charted the rise of crowdfunding, both in the equity space as well as the debt and reward-based areas – analysing how much money has been involved, which new players have emerged and how pitches have been honed to raise that all important capital.
However, until now, we haven’t really had anything we can hang a story off to gauge whether, (a), it can be deemed as a way for smaller investors to get some decent returns and, (b), whether it has any kind of longevity.
The E-Car Club story, when it comes to crowdfunding, began in 2012 when the business, which was set up to be the UK’s first entirely electric car sharing club for businesses and communities, raised £100,000 on equity crowdfunding platform Crowdcube from 63 private investors.
One of those investors was Harald Nieder. Nieder just so happens to have been the single largest investor in that deal, kicking in £15,000 – or 15 per cent of funds raised. I got in contact with Nieder, having first spoken to him in 2013 about what kind of companies he was looking to back, to find out more.
Describing his initial attraction to E-Car Club, Nieder said the business was sitting in an “interesting sweet spot” for electrical vehicle usage. Back then petrol prices were much higher, and Nieder liked the idea of putting electric vehicles into the context of a car club and giving users a fixed rate – without the unpredictable nature of re-fuelling at the pump.
He also felt the company’s co-founders Chris Morris and Andrew Wordsworth made a good impression, with each having a huge network and amount of experience in the space.
The third factor in the attraction to Nieder was the way it was “very, very reasonably priced”. His £15,000 investment secured him “A” voting shares and about three per cent of the business. With money in the bank, E-Car Club began to grow without much input from Nieder beyond the occasional introduction to a relevant party.
Only a few months later, buoyed by how well its crowdfunding pitch had been and the exposure received, the company decided to raise some additional capital. It is normally at this stage that the problems with crowdfunding begin to surface. Many casual investors come in with a fairly nominal fee at the beginning, acquire no voting rights, and are then heavily diluted when a business raises new funds from institutional sources that do want influence.
However, the experienced investor in Nieder saw the potential in E-Car Club. He contributed £7,000 to the new £215,000 round, in effect protecting his stake and reducing dilution. With that deal done and dusted he was pretty much stable.
A final fundraise in February 2014, involving Ignite Social Enterprise, brought in a further £500,000 of growth capital. Nieder didn’t take part in this round, but only experienced a mild dilution to around 2.3 per cent.
Nieder admitted that he wouldn’t have had any problem following the growth path of E-Car Club a little longer if the Europcar transactor, which began as a partnership discussion, had not come along.
While Nieder was reluctant to go into much detail on what his return from the sale was, our sources point to a multiple somewhere in the region of 3-3.5x – not bad for two years of vested interest.
Read more about crowdfunding:
- Crowdcube breaks crowdfunding record with £6.3m Bitcoin business deal
- Taking the Seedrs crowdfunding platform to the slowly-adopting US
- The top 15 most oversubscribed equity crowdfunding projects
E-Car Club now has a serious corporate backer to help take its offering further in the market, and has shown that crowdfunding can be used as a platform for not only future fundraisings, but also generating the kind of buzz for an potentially interested acquirer to take notice.
However, Nieder’s involvement still begs the question: can early-stage investors in crowdfunding pitches really expect to achieve a significant return unless they invest a sizeable amount and then follow-on with more funds if another round is closed?
“It depends on what people’s goal is when they put in the money,” Nieder explained. “A big part of crowdfunding is just being part of the story. If you see the primary goals as financial return then you have to put in bigger amounts.”
Whatever happens, all of the 63 investors who took part in the 2012 deal will have got back more than they put in. Nieder has taken home the most, but he knew the risks involved and was happy to stick with the business and provide more funding.
And perhaps herein lies the answer. Crowdfunding can provide decent returns for educated investors who pick the right deals and know how to manage an investment. For those at the smaller end of the scale, lobbing in amounts only in the three figures, maybe it can only ever be about the story and being along for the ride.
Do you think we’ve reached a watermark moment for Crowdfunding? Let us know in the comment box below.
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