2,803 crowdsourcing and crowdfunding sites
In a really exciting first in the world of crowdfunding, the Rushmore Group which runs private members’ clubs in London has become the first business ever to raise more than £1m using a crowdfunding platform. Based in the UK, Crowdcube is one of the first business finance crowdfunding platforms for businesses to raise equity finance. Crowdcube launched in 2010 as the “next generation of business investment” and offers a new way to fund start-ups and business expansion by providing budding entrepreneurs a platform to connect with ordinary people and raise venture capital.
Selecting Crowdcube for its fundraising platform, Jonathan Downey, founder and owner of the Rushmore Group, opted to use the crowdfunding model over other methods for raising capital needed to expand the business. Sensationally, the Group raised the money in the space of four weeks from 143 investors.
Downey’s adoption of the crowdfunding model was an interesting one! Drawing parallels with new forms of hybrid crowdsourcing models that invite collaboration or competition within pre-screened individuals that are members of a “Private Crowd”, Downey elected to capitalize on a number of the advantages of Crowdcube’s crowdfunding model while choosing to keep the dialogue with prospective investors private. Investors were provided with an easy way to place their investment, they could see how much had been contributed towards the overall goal, and the transaction vehicle provide a quicker way of conducting the transaction over other more traditional methods of raising venture capital. With Crowdcube charging a 5% success fee and legal fees of £1,750 on completed projects, raising the funds via Crowdcube also proved to be cheaper than going through any of the ‘traditional’ means of funding, even when you take into account that Downey approached outside investors directly and not via the platform.
GETTING OFF TO A GOOD START
Crowdcube is based at the University of Essex Innovation Centre and has performed impressively since its launch. In August, 2011, Crowdcube raised £75k in their first funding venture for Bubble and Balm, a company which provides luxury body care products at competitive prices. During the same month Crowdcube also raised £25k for the Personal Development Bureau, a London based start-up founded by Rupert Honywood. The company provides mentoring, training and support services for police and armed forces personnel who face redundancy and early retirement. Earlier this month, Crowdcube had its biggest success to date and raised an impressive £100k for Civilised Money, a company which uses people-to-people networks to “create an ethical, transparent alternative to existing financial services industry” and hopes to eventually offer the same services as traditional banks.
CROWDCUBE HITS THE JACKPOT!
Last week, Crowdcube hit the jackpot with a new world record for the largest amount of money raised using a crowdfunding platform topping the previous record which stood at $941,648 raised on Kickstarter for the iPod nano watch kit TikTok + LunaTik by over $500,000. The Rushmore Group, which was founded in 2001, will use the money to develop and launch a new venue in Soho, London next year. The Group currently owns three clubs – Milk & Honey, The Player and Danger of Death.
Jonathan Downey, founder and owner of the Rushmore Group set an investment target of £1m on Crowdcube, offering 10% equity in return for funds. One of the benefits traditionally offered by crowdfunding platforms is that they provide a platform for entrepreneurs to communicate openly with investors. Typically, details of the proposal are published and the open exchange of information provides prospective investors with answers to questions and further details. In this instance however, Downey elected to keep the dialogue with the investment community confidential. When I looked at the project page, it was clear that the project was being conducted with strict limits governing the sharing of information publically. The Pitch in the Summary tab simply states that the Rushmore Group is “seeking £1m to fund future expansion plans” and only expands if you join the website and log in. There are no Updates published on this project and the Q&A tab is empty.
I spoke to Luke Lang, co-founder and Marketing Director of Crowdcube to get deeper insight into the Rushmore Group deal. He told me that Downey had elected to invite potential investors to contact him directly via email, publishing his email address on the project page, thereafter conducting all discussions on a private basis. He revealed that many of the investors were existing members of the Rushmore Group’s establishments, many of the investors being people that Downey already knew and was familiar with. He chose to use Crowdcube as a platform to channel interest and enthusiasm from a loyal band of members of the Rushmore Group’s clubs. He pointed out that using Crowdcube as a platform offered investors the confidence and reassurance of seeing others invest. It also meant that at the end of the process, there would be a reconciled list of investors and investment amounts and that Crowdcube’s automated systems could be used to email them and generate share certificates.
Interested in getting a sense of how the market had reacted to the news, I spoke to Korstiaan Zandvliet, Co-founder and CEO of Symbid, the Dutch based equity based crowdfunding platform based in Utrecht. “This is a marvellous achievement for the Crowdcube team and encouraging for the crowdfunding industry as a whole.” Zandvliet told me. He went on to say that when the sums involved start to reach record levels it’s a huge leap forward for the industry and demonstrates that crowdfunding is here to stay and can help to overcome the challenges that entrepreneurs face raising capital for small businesses. Many small businesses are caught in the so called “equity gap”, requiring funding in the range of a few hundred thousand dollars to $2m. As the industry is so new, Zandvliet stated it’s clear that it’s being watched very closely by financial regulators all over the world so it’s vital that claims are validated for the legality and integrity of the industry as a whole.
CROWDFUNDING VIA A “PRIVATE CROWD”
Crowdcube seem to have successfully identified a new market opportunity and demonstrated that crowdfunding is already evolving. Many ventures need to raise funds in a confidential manner, due to competitive issues and issues of Intellectual Property – this means using a ‘private crowd’ rather than a public crowd may be very appealing to a new bread of entrepreneurs seeking to raise venture capital via crowdfunding.
A lot of people think that crowdfunding is simply a pledge-based model offering token rewards for contributions rather than a model for investment in return for equity or profit or revenue sharing. However, crowdfunding platforms can also be used by entrepreneurs to raise capital in exchange for equity. The platforms can be used to facilitate transactions, to present a brief and to review and manage the contributions made by multiple participants. It’s promising for the industry that Jonathan Downey saw crowdfunding as the most convenient and effective way of raising the funds needed by the Rushmore Group.
THE SKY’S THE LIMIT!
Luke’s final thoughts on the Rushmore Group deal were very upbeat. He said “We’ve raised the bar for crowdfunding and how businesses raise finance in the UK. Previously a lot of people thought you could raise smaller amounts by crowdfunding and we’ve proved that it’s only limited by the quality of the business idea and the Entrepreneur’s ability to push the message out and whether they have a community interested in investing in the business”. He went on to stress that Crowdcube takes every business on its own merits.
This really is encouraging news for businesses in the UK and the rest of the world. The Crowdcube guys have shown that they are serious players in the investment industry and we seem to be on the cusp of change in the way finance is raised in the future. As Luke said, “The sky’s the limit!”
SUPPLEMENT: CROWDCUBE’S EQUTITY BASED CROWDFUNDING SUCCESSES
Founded by Darren Westlake and Luke Lang, the platform had already helped several SMBs to raise almost £450,000 in funding before this week’s success with the Rushmore Group.
In August, 2011, Bubble and Balm, a company which provides luxury body care products at competitive price, raised £75k on Crowdcube. With a comprehensive range of Fairtrade certified products, Bubble and Balm is the first “100% Fairtrade” company in the UK. The company was founded by Sue Acton who’d previously worked in the field of corporate banking and she fully intends that her products will become a mainstream brand – so much so that they’re already stocked in some supermarkets as well as in smaller, independent outlets.
During the same month Personal Development Bureau, a London based start-up founded by Rupert Honywood, raised £25k through the platform. The company provides mentoring, training and support services for police and armed forces personnel who face redundancy and early retirement.
Earlier this month, Crowdcube had its biggest success to date and raised an impressive £100k for Civilised Money. The company uses people-to-people networks to “create an ethical, transparent alternative to existing financial services industry” and hopes to eventually offer the same services as traditional banks. Users will be able to choose whether to participate in investing, donating, lending, borrowing, transacting or fundraising. This is an attractive prospect for those interested in an ethical banking system. The Occupy Movement is spreading and people all over the world are beginning to question the way banking systems work. The time is certainly ripe for a change.