What does the first exit mean for crowdfunding?
4 min read
24 September 2015
Crowdfunded business E-Car Club was sold to Europcar in July – the first successful crowdfunding exit, which gave investors a 3x return. What does it mean for the industry?
We have now seen the first complete exit for crowd investors with the sale of E-Car Club to Europcar in July. The sale gave 63 investors, who invested a total of £100,000 via crowdfunding, a three times return on their investment.
E-Car Club – the UK’s first entirely electric car sharing club for businesses and communities – has become a milestone in crowdfunding history, not just as the first crowdfunded exit, but also as an indication that the worlds of alternative and traditional finance are colliding.
The business secured initial support from the Technology Strategy Board, went on to raise seed investment through Crowdcube, followed by angel investors, before finding a socially minded institutional investor in Europcar. This mix of the old and the new has led to a successful trade sale to one of the world’s largest car-hire and mobility businesses in just four years.
Since we launched our business more than four years ago, investment crowdfunding has grown quickly. Crowdcube reached its own milestone recently, helping to raise £100m – the first crowdfunding platform to do so.
While E-Car will go some way to proving the doubters wrong, it shows a lack of understanding about the types of businesses raising finance through crowdfunding. The majority of businesses that raise funds via the crowd have a team with proven experience and serious business nous. They have a clear business plan with a keen eye on how an exit might be given and in what timescale.
Read more about crowdfunding in the UK:
- The top 15 most oversubscribed crowdfunding projects
- Exploring the true power of the crowd – it’s not all about money
- Britain becoming a divided nation over crowdfunding concept
Far from being unsophisticated businesses for unsophisticated investors, they are increasingly established. Take JustPark, a platform that connects people with cars with unused parking spaces and driveways, who raised £3.7m earlier this year. Interestingly, they raised this money alongside more traditional investors like Index Ventures and BMW i Ventures, the VC arm of BMW.
Although the average investment size on Crowdcube is £2,000, this figure is rising, plus we’re seeing more sophisticated investors prepared to invest significant sums of money, such as the private equity professional who put £1m into Sugru, a mouldable glue company – the largest single private investment. E-Car Club itself attracted two investors holding senior positions at global banks and others working in private equity.
Crowdfunding is no longer an industry in its infancy. It has reached a tipping point, perceived as a mainstream option, rather than ‘alternative investment’, and one that often works well in combination with other forms of investment.
It attracts large-scale investors, including VCs, private equity firms and institutions alongside everyday investors. Rather than a last resort, it’s often the first choice for those looking to raise finance, including established businesses, like Eden Project and River Cottage, who are already delivering returns to investors via their mini bonds.
We will start to see more equity returns come through company exits as early adopters of crowdfunding start to mature, with many showing promising progress and growth. Meaningful returns for investors are vital for the long-term success of the crowdfunding industry.
Luke Lang is the founder of Crowdcube.