If that isn’t enough encouragement for angels, there is also crowdfunding. It adds a whole new dimension to the concept of angel investing. It is also stretching the definition: many of the start-ups using crowdfunding are not making equity stakes available. The much-touted Kickstarter enables companies to give away “rewards”, discounts, or their actual products in return for the money that helps get their project off the ground.
Selling equity through crowdfunding is much less common.
Seedrs is one of the most significant. Authorised by the FSA in July 2012 and run by ex-lawyer Jeff Lynn, it operates more like a marketplace. Investors become members of Seedrs for free and then review and, perhaps, invest in the start-ups on the Seedrs website. Seedrs will hold investors’ shares as a nominee, holding and managing the shares on behalf of the investors. It takes 7.5 per cent of any money raised and the same percentage cut from any profit made by an investor.
There’s an interesting blog by Matt Warren, founder of Veeqo, on how his company used Seedrs to raise £30,000.
Direct equity via crowfunding is the pitch of Crowdcube. Since launching in February 2011, Crowdcube has raised more than £4.8m in 34 deals and has 28,000 registered investors. The typical investment is £50. This is the collaboration of the web. Crowdcube has also recently been authorised by the FSA.
There are as many opinions about crowdfunding as there are crowdfunding sites.
Serious business angels are not wholly averse, but they are cautious.
Some are concerned that crowdfunded companies will not have as much access to the same networks and connections than if they had used “normal” angels. The mentoring that comes with angels should not be lightly ignored. “If that was absent in a crowdfunded model, I would worry a little,” says one well-placed angel investor. “If I could not sit on the board, then I would want to know who was monitoring it from an investor’s point of view.”
And it’s not as though the entrepreneur is short of experienced business angels to pitch to.
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