Why not join the crowd and discover the new way to fund your growth?

An overview of UK Crowdfunding

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Alan Scrase21st March 2013

Context

• SETsquared Partnership - the Enterprise collaboration of the Universities of Bath, Bristol, Exeter, Southampton and Surrey

• Approximately 7,400 academics working at these universities are responsible for ten per cent of the UK's Higher Education research budget

• Partnership formed in 2002 led by Southampton with Bath, Bristol and Surrey (Exeter joined in 2011)

• Funded under Higher Education Innovation Funding until 2015

• Collectively supports the growth and success of new business opportunities through spin-outs (20%), spin-ins (80%), licensing, acceleration and incubation

The SETsquared approach • SETsquared approach

– Review and apply to enter– If accepted then

• Work with Centre staff• Appoint mentor• Regular Business Review panels

• Aim to assist high-growth and innovative companies with

– business planning– management team development– Securing funding

• Grants• Banks • Investment including crowdfunding

• UK has lots of great ideas• Need to cultivate ideas into the next

Google/Twitter/GroupOn• Often stifled by access to

UK has a wealth of entrepreneurialtalent

Google says searches for "business plan UK" have increased by 60% over the past year and searches for "small business loan" are up by 34%

Money

• Grants complicated and time consuming• Debt finance hard to come by• Venture capital difficult to find for smaller

requirements• Business angels – limited investments

• Typically a syndicate each investing £10k - £100k

• Is there a way to have 5000 angels each investing £10?

• What if anyone could become a business angel?

The way it is…

Crowdfunding

• Crowdfunding is an approach to raising the capital required for a new project or enterprise by appealing to large numbers of ordinary people for small amounts

• Social Media• Crowdfunding examples

• Kiva.org - $325m funding raised, >777,000 lenders, ~800,000 entrepreneurs

• Kickstarter.com – >24,000 projects funded, > $250m pledged to-date, 2m people have pledged

• Most fundraising to date in lower gap but rapidly growing

Equity Funding Gaps

• Model has shown potential to raise larger amounts

• Participation of larger investors

£100k £1m £2m

In 2011 453 platforms raised $1.5 billionin project and business financingSource: Crowdsourcing.org

Annual growth in the number of crowdfunding platforms worldwide

Crowdfunding Types

• Mix of motivations for investing

• Financial and non-financial returns

• Model’s suitability for social ventures

Risk-Reward profilewhere crowdfunding may fit

Kickstarter Project Crowdfunding

Kickstarter Project Crowdfunding

Kickstarter Project Crowdfunding

FundingCircle Loan Crowdfunding

FundingCircle Loan Crowdfunding

FundingCircle Loan Crowdfunding

http://www.crowdcube.com/pg/how-it-works-4

The stages of equity crowdfunding

• Crowdcube provides a FSA approved web-based central hub for entrepreneurs to meet micro-investors. It uses the power of Crowdfunding to provide a unique service to two types of people:

Crowdcube Equity Crowdfunding

“$100 invested in Microsoft at their IPO would now be worth approximately $35k.”

• for entrepreneurs to source equity funding more accessibly than conventional routes

• for smaller investors to have the opportunity to invest in exciting high-potential businesses

Crowdcube Equity Crowdfunding

Crowdcube Equity Crowdfunding

Crowdcube Equity Crowdfunding

https://www.fundingcircle.com/how-it-works#how-it-works-video

Equity crowdfunding benefits

Success so far…

£5.1 millionfunded so far…

£100,000largest single investment

>30,000members

Deals successfully funded

35£1 million

biggest deal

Crowdcube to date

£2,547av. investment FSA Authorised

Some challenges

• Regulation

• Process challenges

• Post-investment

• Getting the best participants

• Potential returns

Regulation

• Important to ensure investors are protected

• JOBs Act is one option but not necessarily the best one

• EU looking at options

• UK FSA have started approving already

• Need for more transparency and consistency across Europe

Process challenges

• Flexibility around valuations

• Collaboration between investors

• Investor transparency and signals

• Using online tools to aid in fraud detection and business evaluation

Post-Investment

• Managing input from many investors

• Incentivising investors with small stakes

• Protecting investors post-investment

• Voting rights

• Exploring liquidity for investors

• Ensuring businesses remainattractive to follow-on funders

UK Crowdfunders

Alan Scrase

SETsquared at the University of

Southampton Incubation Centre Manager

a.scrase@soton.ac.uk

07825 761 652