When crowdfunding, both debt and equity, came onto the scene four or five years ago there were many sceptics. Since then those sceptics have not gone away – and have, if anything, grown in their size and voice.
Despite this crowdfunding has become an increasingly popular way to raise money for both early-stage and growing companies. From entrepreneurs looking to bank £10,000 or so to develop an idea further, to established businesses banking £50,000 so that a new order can be satisfied, the area has produced some compelling stories.
Through all of this, the industry had not been able to prove that investors backing companies through crowdfunding would one day be able to make a profitable return on commitments. We had seen businesses raise millions of pounds though platforms such as Crowdcube and Seedrs, witnessed Funding Circle receive capital from the British Business Bank as well as launch in the US and tracked Kickstarter become the de facto source of capital for musicians, artists and other creatives alike. But no exit deal.
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
The listing of Mill Group Residential on London’s Alternative Investment Market (AIM) just before Christmas marks this seminal moment. It is also the UK’s first “mainstream, buy-to-let REIT (real estate investment trust) specialising in residential property” to list on the exchange.
Raising a further £987,000 through a placing, the business now has a market capitalisation of £3.5m. There are a few caveats to add though. It’s £2m-odd fundraising round was only completed at the beginning of December and was largely marketed as a pre-IPO round. It is also a pure investment play, rather than the backing of consumer goods that has been at the centre of many crowdfunding bids. Investors in Mill are largely buying into a property portfolio.
Listing on the stock exchange is not a cheap thing to do, so it makes sense that the business sought a small and quick injection of capital to ease the burden. It will now be able to use its position, and institutional shareholder access, to raise further funds when it wishes.
Commenting on the deal, Goncalo de Vasconcelos, co-founder of SyndicateRoom, said that the transaction was a “hugely important milestone for crowdfunding” and gives “credence and proof” to the value of crowdfunding.
It will be interesting to see if any other crowdfunded businesses achieve a liquidity event in 2015, through either acquisitions or IPOs. With each passing month a new platform seemingly crops up, making an already busy market that little bit more cluttered.
One worrying trends has been the amount of businesses needing to recapitalise. Not that raising additional funds necessarily means anything untoward, but questions need to be asked regarding whether these are important growth funds or capital to simply stay alive.
This commentator believes we might see more longevity in the debt side of things. Funding Circle, MarketInvoice and Zopa have all been wildly successful in providing a new route to borrowing for small and medium-sized businesses. Each platform makes it easier to raise money and allows lenders to access a better interest rate than conventional banks.
Crowdfunding bond issues are also cropping up more and more, taking the model John Lewis and Hotel Chocolat used by launching retail bonds and creating a new digital offering. Mexican restaurant Chilango, celebrity chef Hugh Fearnley-Whittingstall and coffee venture Taylor Street Baristas have all successfully used the funding option.
In the meantime we’ll keep our eyes open for further exit transactions. Like a venture capital or private equity portfolio, many crowdfunded ventures are reaching maturity and will feel the pressure to reward the very backers who helped early on.
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