INVESTMENT
Cambridge has a buoyant and lively crowdfunding and angel-investing scene"
Technologies (which was bought by US-based pharmaceutical device maker SMC for an undisclosed sum in 2016) and Axol Bioscience (which has raised money in further funding rounds at higher valuations), Britton is open about crowdfunding’s risks. “Roughly 60-70%of all start-ups won’t give their investors any form of return,” he states. “That doesn’t mean 60- 70%go bust. Sometimes they plateau and they might break even, but then they don’t grow enough to be sold and simply trade year to year. They earn enough to pay their employees a salary, but not enough for investors to get money back.” He adds that investment time horizons are also longer than the three to five years many people think – often “two to three times that” – and that crowdfunders should not expect a quick exit. Showme the money Like all investments, crowdfunding comes with financial risks and professional advice should be sought before investing. Firms raising money on crowdfunding websites are usually small or start-ups, which are inherently considered riskier (ie prone to failure). Research by start-up database Beauhurst for The Sunday Telegraph
found that, between 2013 and 2015, 21%of businesses that had raised money through a crowdfunding website had collapsed. This is better than the just-under 50% failure rate for all new businesses, according to the Office for National Statistics, but is still arguably riskier than buying shares in larger, established companies listed on the stock market (see Cambridge Catalyst issue 02). Notable crowdfunding success stories include Aberdeen-based brewer BrewDog – which has just opened a bar in Cambridge – whose disciples, dubbed ‘equity punks’ after the brewer’s Punk IPA beverage, now have a stake in a company valued at almost £1bn after US private equity investor TSG Consumer Partners bought just over a fifth of the company for £213m in 2017. Other crowdfunding trailblazers include hourly low-emission car hire firm E-Car Club, brewer Camden Town Brewery, knitting and crochet business Wool and the Gang, and fintech start-ups Monzo and Revolut, which raised £2.5m and £3.9m respectively. On Crowdcube, just six – including some of those named above – have returned actual money to investors, while slightly more than half (55%) of 180 businesses on Crowdcube raised money
again at a higher valuation after their initial cash call, giving investors a profit ‘on paper’. Websites that match buyers and sellers of shares in crowdfunded companies have emerged, but transaction charges apply. Vibrant crowd Cambridge has a buoyant and lively crowdfunding and angel-investing scene. Organisations such as Cambridge Angels, Cambridge Capital Group and IQ Capital are networks of private investors, family offices and venture capital funds that help provide capital to some of the city’s most innovative businesses. A whole host of businesses, from restaurants, drinks manufacturers, bioscience companies and finance- related apps all based in Cambridge have or are raising money via crowdfunding websites – giving everyone an opportunity to invest in the Cambridge start-up scene.
The author, Anna Lawlor, is co-founder of Luminescence Communications. Additional reporting by Bradley Gerrard
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ISSUE 03
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