Crowdcube, the UK crowd investing site, celebrated a new record in helping Liverpool based Crowd Mortgage Limited, get funding in just 2.5 days.
The company managed to raise £50,490 from 53 investors for 20% of the company equity.
So what does this tell us about the crowdfunding market?
This values the company on funded basis as worth £252,450, which is less than the valuation placed on other businesses which are asking for £100k for 10% of equity (ie. a valuation of £1m if the funded is received) – and not getting funded.
The successfully funded Personal Development Bureau raised £50,000 for 30% of equity from 68 business angel investors in phase one and 25 investors in phase two (many of the phase two investors would also be investors in phase one). This equates to a crowd funded valuation of £166,677.
The average investment made equates to £952 in the case of Crowd Mortgage and probably around £500 in the case of the Personal Development Bureau, albeit that the latter was funded over a year and a half ago across two phases.
However, even a quick glance at the Crowdcube hall of fame shows that pre-revenue businesses are typically achieving £50 to £60,000 in funding for around 15%. Those pre-revenue companies asking for £100k are typically offering more equity – up to 30%.
Hence, crowdfunding appears to be taking off and that pitches either get funded quickly or not at all. The first week is probably more important now that more investors are comfortable with the idea. Momentum is everything.
Also, the valuations of pre-revenue businesses is being set by what investors will accept – with valuation of between £150,000 to £300,000 being the norm.
This is above the advice of Dave Berkus who sets a bar at $100k for a pre-revenue business, but may in fact reflect that UK investors can expect to get half of their cash back through the SEIS or 30% back through the EIS schemes.
Hence, whilst the property sector has proven to be a hot route to investment for Crowd Mortgage, it is just as likely that sensible valuations plays a key part too.
Of course, existing businesses with established customers and cashflows are valued differently and are also looking to raise considerably more money.