Crowdfunding, a model that raises funding for start-ups by harnessing the power of the Internet investor crowd has grown from similar models that already exist in the US, but Crowdcube is the first website of its kind to be launched with UK businesses in mind – will it provide all the answers for entrepreneurs who need investment?
“There is something very attractive about the concept and we at Angels Den applaud anything that makes funding more available to the masses”, said Angels Den founder, Bill Morrow, when I asked him about crowdfunding, the Internet innovation which threatens to shake up the world of start-up financing.
However there are rumblings in some quarters that crowd sourcing for business investment may not provide the answer in all cases. There are already some business angels and entrepreneurs who have expressed doubts about having large numbers of investors involved in a single business idea.
“Making the BIG assumption that making a financial promotion to a large number of “unsophisticated” and inexperienced investors can be said to be legal [and I remain unconvinced about this, just wait for the first widow or orphan to complain that they did not understand what they were getting into] means I do wonder if having a multiplicity of investors serves the entrepreneur in the medium term.”
There are concerns that the crowdfunding concept may have its limitations for both business angels and entrepreneurs particularly where they need to be in agreement on the investor investee arrangement from the outset to make sure things run smoothly. “We have 6 investors and they often pull us in a different direction to that which we feel is right. That is their right, but in common with most start-ups this is confusing and time consuming.” explained Bill, “Having 1,000 investors, each with their own agenda is going to be a nightmare, no matter how it is dressed up.
One of the benefits of having a business angel invest, is not just about their money … they bring their experience and little black books of contacts. They want to share these and I wonder if much sense of ownership can really be had, by investing £10. Will this be enough to motivate the investor to share their experience? And even if it does, coordinating 1,000 “good ideas” will take a lot of energy.
He added “I also wonder if an entrepreneur feels comfortable telling the world about his business. There are a lot of unscrupulous people out there. Our deals can only be seen by those who have complied with FSA guidelines, even then, confidentiality is THE number ONE question entrepreneurs ask us about.”
Despite highlighting these concerns, Bill welcomes the opportunity Crowdcube could provide entrepreneurs starved of growth capital. “We wish the concept well. Given the death of the banks and the lack of Friends and Family monies it is extraordinarily difficult to find growth funding these days …. We have over 4,300 certified angels and we find it hard, even though we are amazingly selective about those we take on. Currently we reject 13 companies for every one we take on and we find that even then we still only fund about 40% of those.
Against this, should the first deal actually get funded, the social media PR that this generates will be substantial and attract professional angels to take a deeper look at it …. Maybe 1,000 people all cannot be wrong?