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UKBAA Angel Investment Awards 2019 Tuesday 2nd July 2019, Illuminate at the Science Museum, London

Fri, 05/17/2019 - 08:56
Toast to this year’s success stories at the UKBAA Angel Investment Awards 2019 black-tie gala dinner at Illuminate at the Science Museum in London on Tuesday 2nd July.

The 2019 Awards recognise the important innovators and disruptors who have received investment from angels, VCs and other sources of finance to build and grow their businesses over this past year. It is not just a celebration of the entrepreneurs themselves, but the investors who have brought both risk capital and vital business experience, support and connections to help these businesses further achieve their growth potential.

Connect with some of the most progressive angel and VC investors from across the UK and celebrate industry successes from the 2018 year, all while enjoying a 3-course dinner and a champagne reception.

For more information and to buy tickets, visit http://awards.ukbaa.org.uk.

UKBAA Angel Investment Awards 2019 Tuesday 2nd July 2019, Illuminate at the Science Museum, London

Fri, 05/17/2019 - 08:56
Toast to this year’s success stories at the UKBAA Angel Investment Awards 2019 black-tie gala dinner at Illuminate at the Science Museum in London on Tuesday 2nd July.

The 2019 Awards recognise the important innovators and disruptors who have received investment from angels, VCs and other sources of finance to build and grow their businesses over this past year. It is not just a celebration of the entrepreneurs themselves, but the investors who have brought both risk capital and vital business experience, support and connections to help these businesses further achieve their growth potential.

Connect with some of the most progressive angel and VC investors from across the UK and celebrate industry successes from the 2018 year, all while enjoying a 3-course dinner and a champagne reception.

For more information and to buy tickets, visit http://awards.ukbaa.org.uk.

Connected Investing Newcastle

Fri, 05/17/2019 - 08:55

Connected Investing Newcastle, from UKBAA in partnership with Innovate UK, will look at the major shift in emphasis towards regional funding support and lift the lid on the latest initiatives open to both the investor and start-up communities.

With a huge shift in emphasis towards regional funding support, the Connected Investing event series will lift the lid on the latest initiatives open to both the investor and start-up communities.

Connected Investing will feature the latest updates from newly emerging funds, including the British Business Investments £100m fund and Innovate UK’s regional angel investment accelerator.

We will also take a look at how the changing face of funding has placed more emphasis on the importance of angel investment and hear from inspirational entrepreneurs and their journey to building and exiting successful businesses.

Finally, the event will end with an evening of networking over drinks and canapés.

The Connected Investing event series is being delivered through a partnership between UKBAA, the trade body for early stage investing and Innovate UK, part of UK Research and Innovation, a non-departmental public body funded by a grant-in-aid from the UK government.

To find out more visit http://connectedinvesting.ukbaa.org.uk.

Connected Investing Newcastle

Fri, 05/17/2019 - 08:55

Connected Investing Newcastle, from UKBAA in partnership with Innovate UK, will look at the major shift in emphasis towards regional funding support and lift the lid on the latest initiatives open to both the investor and start-up communities.

With a huge shift in emphasis towards regional funding support, the Connected Investing event series will lift the lid on the latest initiatives open to both the investor and start-up communities.

Connected Investing will feature the latest updates from newly emerging funds, including the British Business Investments £100m fund and Innovate UK’s regional angel investment accelerator.

We will also take a look at how the changing face of funding has placed more emphasis on the importance of angel investment and hear from inspirational entrepreneurs and their journey to building and exiting successful businesses.

Finally, the event will end with an evening of networking over drinks and canapés.

The Connected Investing event series is being delivered through a partnership between UKBAA, the trade body for early stage investing and Innovate UK, part of UK Research and Innovation, a non-departmental public body funded by a grant-in-aid from the UK government.

To find out more visit http://connectedinvesting.ukbaa.org.uk.

Connected Investing Cardiff

Fri, 05/17/2019 - 08:53

Connected Investing Cardiff, from UKBAA in partnership with Innovate UK, will look at the major shift in emphasis towards regional funding support and lift the lid on the latest initiatives open to both the investor and start-up communities.

With a huge shift in emphasis towards regional funding support, the Connected Investing event series will lift the lid on the latest initiatives open to both the investor and start-up communities.

Connected Investing will feature the latest updates from newly emerging funds, including the British Business Investments £100m fund and Innovate UK’s regional angel investment accelerator.

We will also take a look at how the changing face of funding has placed more emphasis on the importance of angel investment and hear from inspirational entrepreneurs and their journey to building and exiting successful businesses.

Finally, the event will end with an evening of networking over drinks and canapés.

The Connected Investing event series is being delivered through a partnership between UKBAA, the trade body for early stage investing and Innovate UK, part of UK Research and Innovation, a non-departmental public body funded by a grant-in-aid from the UK government.

To find out more visit http://connectedinvesting.ukbaa.org.uk.

Connected Investing Cardiff

Fri, 05/17/2019 - 08:53

Connected Investing Cardiff, from UKBAA in partnership with Innovate UK, will look at the major shift in emphasis towards regional funding support and lift the lid on the latest initiatives open to both the investor and start-up communities.

With a huge shift in emphasis towards regional funding support, the Connected Investing event series will lift the lid on the latest initiatives open to both the investor and start-up communities.

Connected Investing will feature the latest updates from newly emerging funds, including the British Business Investments £100m fund and Innovate UK’s regional angel investment accelerator.

We will also take a look at how the changing face of funding has placed more emphasis on the importance of angel investment and hear from inspirational entrepreneurs and their journey to building and exiting successful businesses.

Finally, the event will end with an evening of networking over drinks and canapés.

The Connected Investing event series is being delivered through a partnership between UKBAA, the trade body for early stage investing and Innovate UK, part of UK Research and Innovation, a non-departmental public body funded by a grant-in-aid from the UK government.

To find out more visit http://connectedinvesting.ukbaa.org.uk.

Connected Investing Bristol

Fri, 05/17/2019 - 08:51

Connected Investing Bristol, the second of four regional events from UKBAA in partnership with Innovate UK, will look at the major shift in emphasis towards regional funding support and lift the lid on the latest initiatives open to both the investor and start-up communities.

Taking place on the 21st May, the investment conference will take place at Engine Shed, housed in Brunel’s original station and an exciting hub where investors, entrepreneurs, business leaders, academics and corporates can collaborate, inspire and be inspired. Register your interest for a FREE afternoon full of meaningful content and the chance to network with the UK’s thought leaders in the angel investment ecosystem!

Our Connected Investing event in Bristol will start at 1pm and finish at 8pm.


The focus will be on educating and inspiring both early stage investors and the investee companies they back, with expert speakers covering topics such as:

  • The key challenges for investing in early stage businesses. What does a good early stage investment look like?
  • The different types of funding available at early stages and how to stitch them all together.
  • Announcing Innovate UKs new Regional Angel Investment Accelerator Pilot and an update on the new BBI angel funds.
  • Bristol’s key sector strengths, helping local entrepreneurs access investment from further afield.

To find out more visit http://connectedinvesting.ukbaa.org.uk.

Connected Investing Bristol

Fri, 05/17/2019 - 08:51

Connected Investing Bristol, the second of four regional events from UKBAA in partnership with Innovate UK, will look at the major shift in emphasis towards regional funding support and lift the lid on the latest initiatives open to both the investor and start-up communities.

Taking place on the 21st May, the investment conference will take place at Engine Shed, housed in Brunel’s original station and an exciting hub where investors, entrepreneurs, business leaders, academics and corporates can collaborate, inspire and be inspired. Register your interest for a FREE afternoon full of meaningful content and the chance to network with the UK’s thought leaders in the angel investment ecosystem!

Our Connected Investing event in Bristol will start at 1pm and finish at 8pm.


The focus will be on educating and inspiring both early stage investors and the investee companies they back, with expert speakers covering topics such as:

  • The key challenges for investing in early stage businesses. What does a good early stage investment look like?
  • The different types of funding available at early stages and how to stitch them all together.
  • Announcing Innovate UKs new Regional Angel Investment Accelerator Pilot and an update on the new BBI angel funds.
  • Bristol’s key sector strengths, helping local entrepreneurs access investment from further afield.

To find out more visit http://connectedinvesting.ukbaa.org.uk.

Connected Investing Manchester

Fri, 05/17/2019 - 08:46

Connected Investing Manchester, the first of four regional events from UKBAA in partnership with Innovate UK, will look at the major shift in emphasis towards regional funding support and lift the lid on the latest initiatives open to both the investor and start-up communities.

The Investment conference will take place at Manchester Science Park, the UK’s leading provider of specialist environments and growth support to science and technology. Register your interest for a FREE afternoon full of meaningful content and the chance to network with the UK’s thought leaders in the angel investment ecosystem!

Our Connected Investing event in Manchester will start at 2pm and finish at 9pm, on May 16th at The Manchester Science Park – The Bright Building.


The focus will be on educating and inspiring both early stage investors and the investee companies they back, with expert speakers covering topics such as:

  • The key challenges for investing in early stage businesses. What does a good early stage investment look like?
  • The different types of funding available at early stages and how to stitch them all together.
  • Announcing Innovate UKs new Regional Angel Investment Accelerator Pilot and an update on the new BBI angel funds.
  • Manchester’s key sector strengths, helping local entrepreneurs access investment from further afield.

You can register here: https://connectedinvesting.ukbaa.org.uk/register/

Connected Investing Manchester

Fri, 05/17/2019 - 08:46

Connected Investing Manchester, the first of four regional events from UKBAA in partnership with Innovate UK, will look at the major shift in emphasis towards regional funding support and lift the lid on the latest initiatives open to both the investor and start-up communities.

The Investment conference will take place at Manchester Science Park, the UK’s leading provider of specialist environments and growth support to science and technology. Register your interest for a FREE afternoon full of meaningful content and the chance to network with the UK’s thought leaders in the angel investment ecosystem!

Our Connected Investing event in Manchester will start at 2pm and finish at 9pm, on May 16th at The Manchester Science Park – The Bright Building.


The focus will be on educating and inspiring both early stage investors and the investee companies they back, with expert speakers covering topics such as:

  • The key challenges for investing in early stage businesses. What does a good early stage investment look like?
  • The different types of funding available at early stages and how to stitch them all together.
  • Announcing Innovate UKs new Regional Angel Investment Accelerator Pilot and an update on the new BBI angel funds.
  • Manchester’s key sector strengths, helping local entrepreneurs access investment from further afield.

You can register here: https://connectedinvesting.ukbaa.org.uk/register/

Crowdfunding in search of the next Apple or Facebook

Fri, 03/01/2019 - 15:08

How young people are piling their savings into start-ups in search of business ‘unicorns’ by Nikou Asgari from Financial Times

Sahil Bahl, a 24-year-old digital consultant from London, has invested £2,500 in four businesses via crowdfunding websites, ranging from tech start-ups to a coffee chain. The prospect of losing all his money does not worry Mr Bahl. He is in search of a business unicorn.

Online equity crowdfunding platforms — able to link new businesses with a “crowd” of multiple small investors — first emerged in the UK in 2011. The desire of young investors to back young and growing businesses with a disruptive streak is perhaps not surprising. It is possible to invest sums as small as £10 in an array of tech-driven and highly Instagram-worthy UK businesses.

The most popular online platforms — Crowdcube, Seedrs and Syndicate Room — enable businesses seeking capital to post videos as part of their investment pitch, allowing founders to speak directly to the generation that has grown up watching YouTube and Dragons’ Den.

Having stumped up cash to become a shareholder, young investors dream of being in at the start of the next big thing. Apple and Facebook, which started life in bedrooms and garages, are among the world’s most valuable businesses today. Although few ever achieve the near-mythical status of a unicorn — a start-up that grows into a $1bn business — the allure of harnessing one is huge.

The number of 18 to 24-year-olds investing through Crowdcube has nearly quadrupled since 2016 — a surge not seen in any other age group.

A cynic would put such youthful enthusiasm down to naivety. The risks of crowdfunding are high, and investors can lose all of their money if a business goes bust.

But this doesn’t put off young investors like Mr Bahl. FT Money meets the new generation of crowdfunding investors and asks what the traditional investment industry could learn from its growing popularity.

Follow the crowd

Crowdfunding is big business, and the success of household names such as craft beer brand BrewDog and challenger bank Monzo has catapulted the investment class into the mainstream.

Since 2011, UK businesses have raised an average of £629,000 per crowdfunding round, according to data from start-up research company Beauhurst.

In 2016, Monzo set a record for the quickest crowdfund in history, raising £1m in just 96 seconds. In December 2018, it raised £20m over two days; giving the company the status of a unicorn company — a privately owned business valued at $1bn or more.

Monzo investors hope it will become another Crowdcube-listed business to make a positive exit — but only nine exist so far.

Since the platform was founded, 60 per cent of its investors have been younger than 44. Seedrs says 80 per cent of its investors are aged under 50, and Syndicate Room says 57 per cent are under 45. The tangibility of investing in businesses such as tech companies, fashion labels and food and drink brands appeals to younger investors for whom the stock market or pensions may seem boring and distant.

The sums that young investors are prepared to stake are also rising. In 2016, the average 18-24-year-old investor staked just over £306 through Crowdcube. By 2018, this had nearly quintupled to £1,577. This stands in contrast with the overall average investment made on Crowdcube, which fell from £1,697 to £1,298 across the same period.

According to Luke Lang, co-founder of Crowdcube, the most successful companies are “creating their own tribe, are purpose driven and community focused”.

These qualities attracted Shubhangi Sharma, a 22-year-old student, to invest in Monzo.

“For me crowdfunding is a more engaging process than stocks and shares Isas,” she says. “With traditional stocks and shares, it’s hard to assess and understand company ethos and what they stand for and what the actual value offering is. The process of looking at firms [which are] crowdfunding and assessing their new and creative ideas and the specific problems they’re solving is far more interesting and easier to understand.”

Saying she finds crowdfunding “exciting”, Ms Sharma’s interest grew from being a Monzo customer herself and understanding its features. Funding a business that investors use themselves is a common theme.

“I’ve invested in companies where I think there’s a bit of a future, where I understand from a service point of view what they’re offering,” explains Mr Bahl. His £2,500 investment across four crowdfunded businesses also stemmed from Monzo, in which he invested £1,000 in 2016. “That led me into the whole idea of crowdfunding and the realms of alternative investments,” he says.

Although Monzo crowdfunders have yet to receive a penny back on their initial investments, the rapid growth of this and other fintech firms strengthens their belief that it will happen one day — or that, at the very least, the potential upside is worth the risk of an investment. Those willing to put money into crowdfunded equity assets may also sometimes qualify for valuable tax breaks (see below), even though these investments cannot currently be held in a tax-friendly ISA.

Devoted to disrupters

Since 2011, technology has been the most popular sector receiving equity crowdfunding investment in the UK, data from Beauhurst shows. Meanwhile, 12 per cent of equity funding recipients are food and drinks companies — comparatively, only 3 per cent of equity finance from the wider funding landscape goes into the food and drink sector.

In 2015, Camden Town Brewery became the first Crowdcube-listed drinks company to make a positive exit. After raising £2.75m, the brewery was bought by AB InBev, the world’s largest drinks company, for £85m.

Fintech company Revolut is another crowdfunding success story. In 2018, the bank’s investors received 19-fold returns on their original investments. Revolut became the second Crowdcube unicorn, after BrewDog achieved unicorn status in April 2017. The fintech app has also raised money on Seedrs.

Inspired by this trend, Victoria Carew, a 25-year-old adviser in financial services, has invested £268 across four businesses on Seedrs. Her largest investment — £150 — is in Wrisk, an app-based insurance company. “They’re introducing technology to what seems like an archaic industry”, she explains. Within the technology sector, 7 per cent of crowdfunded companies are developing an app, according to Beauhurst.

“Industry disruption” is a key trend in Ms Carew’s investment choices; she invested £66 in Hectare, a GPS land surveying app. “My parents are farmers, it’s quite a backwards, archaic industry. I looked at my parents, the manual process and inventory of, for example, how many sheep they have. An app out here that can do the simple book-taking for you is such a good idea.”

Similarly, three of Mr Bahl’s crowdfunding investments are tech companies, while the fourth is Grind, the open-till-late coffee chain. “Tech companies represent the majority of growth companies today because there’s a belief in the market that they will ultimately deliver revenue and profitability, I’m following that trend.”

He could invest in start-ups listed on the Alternative Investment Market (Aim), the London Stock Exchange’s international market for smaller growing companies, but Mr Bahl disparages: “Do I really know what the Aim companies are and what they do?”

Businesses raising money via crowdfunding engage potential shareholders in ways which are often more exciting than traditional investment options. Crowdfunding websites typically list descriptions and videos of UK-registered businesses seeking capital. On the pitch page, investors can see the share price, valuation, capital requirement, how much has been invested so far and whether the shares include voting rights and tax relief.

Mr Bahl appreciates the details provided: “I could understand what the service was and which venture capitalists or private institutions have also put their money behind it.”

Turning customers into investors

Many crowdfunding businesses seek investment from their existing customers.

David Abrahamovitch, founder of café-bar chain Grind, has twice enticed his customers to invest and is this week looking to replicate the past. The coffee and cocktails chain is launching its third Crowdcube campaign next Friday, seeking £3m.

Rather than looking for venture capital, Mr Abrahamovitch emphasises that raising money through Crowdcube’s “tech platform” makes complete cultural sense for a “young, digital, very Instagram-driven business”.

“A very high proportion of our investors were customers,” he says about previous fundraising, explaining that a mixture of direct marketing, social media and Crowdcube’s own marketing has led to overfunding previously.

Aged 33, Mr Abrahamovitch is one of the oldest at Grind and his employees are mostly in their early 30s or younger. The young business has capitalised the power of Instagram to turn coffee lovers into financiers — a strategy that more traditional firms can learn from.

Grind’s Instagram account has 118,000 followers and its photos are a mix of neon signs, latte art and weekly brunch giveaways, directly appealing to a generation who unapologetically spend money based on aesthetics and experiences.

Unsurprisingly, advertising works to entice young investors who may not have originally been looking to invest.

Ms Carew first spotted Wrisk on London Underground ads. “The advert promoted both the business itself and Seedrs,” she says, adding that it “said something about changing the insurance industry, so really caught my attention”.

Ms Sharma explains that she notices businesses with a buzz. “There’s usually some publicity that has been created around the firm or technology or the fact they’re having a new round of funding. Very rarely do I open and scroll through potential investments.”

Her investment approach distinctly contrasts with that of older investors.

James Murdoch, a 63-year-old business adviser from London, uses crowdfunding to spice up his wider investment portfolio and has invested in 380 separate companies listed on Seedrs. He sees crowdfunding as a way of helping entrepreneurs and also “a relatively low-cost way of getting to know a number of businesses quite quickly”.

“I would not bet my financial future in risky investments,” emphasises Mr Murdoch, saying he puts “small amounts of money in a lot of companies”.

Others treat crowdfunding more like an expensive hobby. Gail McLoughlin, a 59-year-old retired landscape architect from Scotland, has invested £15,000 across numerous film and tech companies, but has yet to make any returns, admitting that crowdfunding is “only for when you’re feeling a bit flush”.

If their high-risk bets on crowdfunded businesses do not come good, younger investors could lose out in the future. They could also fail to maximise the benefits of matched company pension contributions or pensions tax relief.

Ms Carew says she has an Isa and a handful of stocks and shares. Her Seedrs investments, which cannot be held in an Isa, represent 26 per cent of her portfolio. Despite the long odds of discovering a unicorn, Mr Bahl says he understands the risks, and has invested more money in his conventional stocks and shares Isa than his crowdfunding investments.

Regardless, the sums that 18- to 24-year-olds invest in crowdfunding are rising. Between 2016 and 2018, the average amount these investors sank into new businesses on Syndicate Room rose by 60 per cent — to £1,646.

Average amounts raised from experienced investors have risen less sharply. Although 55 to 60-year-old investors on Syndicate Room invested an average of £5,360 in 2018, this has only risen 22 per cent in two years.

“Crowdfunding appeals to behavioural biases,” says David Stevenson, the FT’s Adventurous Investor columnist. “When people are presented with something sexy and higher risk, they go for it.”

One person who understands this investor behaviour is Cecily Mills, the 35-year-old founder of Coconuts Naturally, an organic dairy-free ice cream brand. She says that crowdfunding gained her business “loyal fans and loyal customers”.

The entrepreneur braved BBC2’s Dragons’ Den in September 2018 and shook hands with investor Jenny Campbell, securing £75,000 for a 30 per cent share in her business. But after the cameras stopped rolling, Ms Mills turned down the offer and instead took her company to Seedrs, where she raised £413,000 for a 22 per cent equity stake.

Risky business

Few crowdfunded businesses will achieve unicorn status, let alone make any money at all. “The majority of start-up businesses fail,” states Crowdcube’s website.

Of all UK companies which raised money through a crowdfunding website between 2011 and 2018, 16 per cent are now defunct — they have ceased activity, been dissolved or neglected — compared with 12 per cent of non-crowdfunded businesses, according to Beauhurst.

Some 2 per cent of crowdfunded companies have exited since 2011, after completing an initial public offering or being acquired. This compares with an exit rate of 9 per cent for companies that raised equity through non-crowdfunding platforms.

The data does not paint a pretty picture for crowdfunding investors; the risk of losing everything is high. When this happens, investors are not protected by the Financial Services Compensation Scheme and risk losing all of their money.

Private investing

From algae to tiny spacecraft — the world of wacky investments

Within her £15,000 investments, Ms McLoughlin expects to lose £1,000 to Oobedoo, an on-demand video app for pre-schools, from which she has heard nothing since the death of its founder. Nevertheless, she says: “I don’t feel anxious about that. I don’t lose sleep about that.”

Despite making no money so far, Ms McLoughlin emphasises that her investments in films have instead granted her once-in-a-lifetime experiences: “I’ve been to the premieres and met the directors. I’ve had an experience with these things [and] met some lovely people.”

Investors must also consider the issue of liquidity, since they are unlikely to be able to sell their shares at will and are usually locked into a business for several years.

Seedrs’ secondary platform, the only secondary crowdfunding market, enables investors to buy and sell shares of Seedrs listed companies. Since its launch in 2017, more than £2.1m has been traded across 314 companies on the market.

Shareholdings may also be diluted. If a business decides to issue more shares, the proportionate shareholding of an original investor will be squeezed.

Andrew Taylor, a finance director from London, has invested £90,000 through both Crowdcube and Syndicate Room. Four of the businesses that he invested in went bust, losing him approximately £50,000. “Those that go bust go bust early on,” he notes.

Despite the high risks that come with this investment approach, Mr Bahl remains unfazed: “I parted with cash knowing that I don’t need it.” Ms Carew echoes this sentiment. “I only ever invest what I can afford to lose.”

Tax perks

Alongside the attractions of investing in a growing business, investors are often enticed by the tax breaks that crowdfunding offers, through the government’s Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS).

EIS offers those who put in up to £1m a tax break of 30 per cent — if they hold on to the shares for at least three years. The tax relief mitigates the amount lost if a business goes bust. For SEIS investments of up to £100,000 per tax year, investors can claim tax relief of 50 per cent.

If an individual invests £50,000 into a SEIS-qualifying business, they receive initial tax relief of £25,000. If the business then goes bust, loss relief is applied according to the investor’s marginal tax rate. A higher rate taxpayer paying 40 per cent income tax receives loss relief of £10,000 — 40 per cent of the £25,000. Therefore the investor may lose £15,000 of a £50,000 investment.

Aware of the tax benefits that equity crowdfunding brings, Mr Murdoch invests 90 per cent in SEIS or EIS eligible businesses and says “it seems worthwhile leveraging.”

Mr Taylor lost £50,000 across four businesses which went bust but says: “The real loss is less than that”, adding that receiving at least half of his money back thanks to tax relief does “lessen the pain”.

Crowdfunding in search of the next Apple or Facebook

Fri, 03/01/2019 - 15:08

How young people are piling their savings into start-ups in search of business ‘unicorns’ by Nikou Asgari from Financial Times

Sahil Bahl, a 24-year-old digital consultant from London, has invested £2,500 in four businesses via crowdfunding websites, ranging from tech start-ups to a coffee chain. The prospect of losing all his money does not worry Mr Bahl. He is in search of a business unicorn.

Online equity crowdfunding platforms — able to link new businesses with a “crowd” of multiple small investors — first emerged in the UK in 2011. The desire of young investors to back young and growing businesses with a disruptive streak is perhaps not surprising. It is possible to invest sums as small as £10 in an array of tech-driven and highly Instagram-worthy UK businesses.

The most popular online platforms — Crowdcube, Seedrs and Syndicate Room — enable businesses seeking capital to post videos as part of their investment pitch, allowing founders to speak directly to the generation that has grown up watching YouTube and Dragons’ Den.

Having stumped up cash to become a shareholder, young investors dream of being in at the start of the next big thing. Apple and Facebook, which started life in bedrooms and garages, are among the world’s most valuable businesses today. Although few ever achieve the near-mythical status of a unicorn — a start-up that grows into a $1bn business — the allure of harnessing one is huge.

The number of 18 to 24-year-olds investing through Crowdcube has nearly quadrupled since 2016 — a surge not seen in any other age group.

A cynic would put such youthful enthusiasm down to naivety. The risks of crowdfunding are high, and investors can lose all of their money if a business goes bust.

But this doesn’t put off young investors like Mr Bahl. FT Money meets the new generation of crowdfunding investors and asks what the traditional investment industry could learn from its growing popularity.

Follow the crowd

Crowdfunding is big business, and the success of household names such as craft beer brand BrewDog and challenger bank Monzo has catapulted the investment class into the mainstream.

Since 2011, UK businesses have raised an average of £629,000 per crowdfunding round, according to data from start-up research company Beauhurst.

In 2016, Monzo set a record for the quickest crowdfund in history, raising £1m in just 96 seconds. In December 2018, it raised £20m over two days; giving the company the status of a unicorn company — a privately owned business valued at $1bn or more.

Monzo investors hope it will become another Crowdcube-listed business to make a positive exit — but only nine exist so far.

Since the platform was founded, 60 per cent of its investors have been younger than 44. Seedrs says 80 per cent of its investors are aged under 50, and Syndicate Room says 57 per cent are under 45. The tangibility of investing in businesses such as tech companies, fashion labels and food and drink brands appeals to younger investors for whom the stock market or pensions may seem boring and distant.

The sums that young investors are prepared to stake are also rising. In 2016, the average 18-24-year-old investor staked just over £306 through Crowdcube. By 2018, this had nearly quintupled to £1,577. This stands in contrast with the overall average investment made on Crowdcube, which fell from £1,697 to £1,298 across the same period.

According to Luke Lang, co-founder of Crowdcube, the most successful companies are “creating their own tribe, are purpose driven and community focused”.

These qualities attracted Shubhangi Sharma, a 22-year-old student, to invest in Monzo.

“For me crowdfunding is a more engaging process than stocks and shares Isas,” she says. “With traditional stocks and shares, it’s hard to assess and understand company ethos and what they stand for and what the actual value offering is. The process of looking at firms [which are] crowdfunding and assessing their new and creative ideas and the specific problems they’re solving is far more interesting and easier to understand.”

Saying she finds crowdfunding “exciting”, Ms Sharma’s interest grew from being a Monzo customer herself and understanding its features. Funding a business that investors use themselves is a common theme.

“I’ve invested in companies where I think there’s a bit of a future, where I understand from a service point of view what they’re offering,” explains Mr Bahl. His £2,500 investment across four crowdfunded businesses also stemmed from Monzo, in which he invested £1,000 in 2016. “That led me into the whole idea of crowdfunding and the realms of alternative investments,” he says.

Although Monzo crowdfunders have yet to receive a penny back on their initial investments, the rapid growth of this and other fintech firms strengthens their belief that it will happen one day — or that, at the very least, the potential upside is worth the risk of an investment. Those willing to put money into crowdfunded equity assets may also sometimes qualify for valuable tax breaks (see below), even though these investments cannot currently be held in a tax-friendly ISA.

Devoted to disrupters

Since 2011, technology has been the most popular sector receiving equity crowdfunding investment in the UK, data from Beauhurst shows. Meanwhile, 12 per cent of equity funding recipients are food and drinks companies — comparatively, only 3 per cent of equity finance from the wider funding landscape goes into the food and drink sector.

In 2015, Camden Town Brewery became the first Crowdcube-listed drinks company to make a positive exit. After raising £2.75m, the brewery was bought by AB InBev, the world’s largest drinks company, for £85m.

Fintech company Revolut is another crowdfunding success story. In 2018, the bank’s investors received 19-fold returns on their original investments. Revolut became the second Crowdcube unicorn, after BrewDog achieved unicorn status in April 2017. The fintech app has also raised money on Seedrs.

Inspired by this trend, Victoria Carew, a 25-year-old adviser in financial services, has invested £268 across four businesses on Seedrs. Her largest investment — £150 — is in Wrisk, an app-based insurance company. “They’re introducing technology to what seems like an archaic industry”, she explains. Within the technology sector, 7 per cent of crowdfunded companies are developing an app, according to Beauhurst.

“Industry disruption” is a key trend in Ms Carew’s investment choices; she invested £66 in Hectare, a GPS land surveying app. “My parents are farmers, it’s quite a backwards, archaic industry. I looked at my parents, the manual process and inventory of, for example, how many sheep they have. An app out here that can do the simple book-taking for you is such a good idea.”

Similarly, three of Mr Bahl’s crowdfunding investments are tech companies, while the fourth is Grind, the open-till-late coffee chain. “Tech companies represent the majority of growth companies today because there’s a belief in the market that they will ultimately deliver revenue and profitability, I’m following that trend.”

He could invest in start-ups listed on the Alternative Investment Market (Aim), the London Stock Exchange’s international market for smaller growing companies, but Mr Bahl disparages: “Do I really know what the Aim companies are and what they do?”

Businesses raising money via crowdfunding engage potential shareholders in ways which are often more exciting than traditional investment options. Crowdfunding websites typically list descriptions and videos of UK-registered businesses seeking capital. On the pitch page, investors can see the share price, valuation, capital requirement, how much has been invested so far and whether the shares include voting rights and tax relief.

Mr Bahl appreciates the details provided: “I could understand what the service was and which venture capitalists or private institutions have also put their money behind it.”

Turning customers into investors

Many crowdfunding businesses seek investment from their existing customers.

David Abrahamovitch, founder of café-bar chain Grind, has twice enticed his customers to invest and is this week looking to replicate the past. The coffee and cocktails chain is launching its third Crowdcube campaign next Friday, seeking £3m.

Rather than looking for venture capital, Mr Abrahamovitch emphasises that raising money through Crowdcube’s “tech platform” makes complete cultural sense for a “young, digital, very Instagram-driven business”.

“A very high proportion of our investors were customers,” he says about previous fundraising, explaining that a mixture of direct marketing, social media and Crowdcube’s own marketing has led to overfunding previously.

Aged 33, Mr Abrahamovitch is one of the oldest at Grind and his employees are mostly in their early 30s or younger. The young business has capitalised the power of Instagram to turn coffee lovers into financiers — a strategy that more traditional firms can learn from.

Grind’s Instagram account has 118,000 followers and its photos are a mix of neon signs, latte art and weekly brunch giveaways, directly appealing to a generation who unapologetically spend money based on aesthetics and experiences.

Unsurprisingly, advertising works to entice young investors who may not have originally been looking to invest.

Ms Carew first spotted Wrisk on London Underground ads. “The advert promoted both the business itself and Seedrs,” she says, adding that it “said something about changing the insurance industry, so really caught my attention”.

Ms Sharma explains that she notices businesses with a buzz. “There’s usually some publicity that has been created around the firm or technology or the fact they’re having a new round of funding. Very rarely do I open and scroll through potential investments.”

Her investment approach distinctly contrasts with that of older investors.

James Murdoch, a 63-year-old business adviser from London, uses crowdfunding to spice up his wider investment portfolio and has invested in 380 separate companies listed on Seedrs. He sees crowdfunding as a way of helping entrepreneurs and also “a relatively low-cost way of getting to know a number of businesses quite quickly”.

“I would not bet my financial future in risky investments,” emphasises Mr Murdoch, saying he puts “small amounts of money in a lot of companies”.

Others treat crowdfunding more like an expensive hobby. Gail McLoughlin, a 59-year-old retired landscape architect from Scotland, has invested £15,000 across numerous film and tech companies, but has yet to make any returns, admitting that crowdfunding is “only for when you’re feeling a bit flush”.

If their high-risk bets on crowdfunded businesses do not come good, younger investors could lose out in the future. They could also fail to maximise the benefits of matched company pension contributions or pensions tax relief.

Ms Carew says she has an Isa and a handful of stocks and shares. Her Seedrs investments, which cannot be held in an Isa, represent 26 per cent of her portfolio. Despite the long odds of discovering a unicorn, Mr Bahl says he understands the risks, and has invested more money in his conventional stocks and shares Isa than his crowdfunding investments.

Regardless, the sums that 18- to 24-year-olds invest in crowdfunding are rising. Between 2016 and 2018, the average amount these investors sank into new businesses on Syndicate Room rose by 60 per cent — to £1,646.

Average amounts raised from experienced investors have risen less sharply. Although 55 to 60-year-old investors on Syndicate Room invested an average of £5,360 in 2018, this has only risen 22 per cent in two years.

“Crowdfunding appeals to behavioural biases,” says David Stevenson, the FT’s Adventurous Investor columnist. “When people are presented with something sexy and higher risk, they go for it.”

One person who understands this investor behaviour is Cecily Mills, the 35-year-old founder of Coconuts Naturally, an organic dairy-free ice cream brand. She says that crowdfunding gained her business “loyal fans and loyal customers”.

The entrepreneur braved BBC2’s Dragons’ Den in September 2018 and shook hands with investor Jenny Campbell, securing £75,000 for a 30 per cent share in her business. But after the cameras stopped rolling, Ms Mills turned down the offer and instead took her company to Seedrs, where she raised £413,000 for a 22 per cent equity stake.

Risky business

Few crowdfunded businesses will achieve unicorn status, let alone make any money at all. “The majority of start-up businesses fail,” states Crowdcube’s website.

Of all UK companies which raised money through a crowdfunding website between 2011 and 2018, 16 per cent are now defunct — they have ceased activity, been dissolved or neglected — compared with 12 per cent of non-crowdfunded businesses, according to Beauhurst.

Some 2 per cent of crowdfunded companies have exited since 2011, after completing an initial public offering or being acquired. This compares with an exit rate of 9 per cent for companies that raised equity through non-crowdfunding platforms.

The data does not paint a pretty picture for crowdfunding investors; the risk of losing everything is high. When this happens, investors are not protected by the Financial Services Compensation Scheme and risk losing all of their money.

Private investing

From algae to tiny spacecraft — the world of wacky investments

Within her £15,000 investments, Ms McLoughlin expects to lose £1,000 to Oobedoo, an on-demand video app for pre-schools, from which she has heard nothing since the death of its founder. Nevertheless, she says: “I don’t feel anxious about that. I don’t lose sleep about that.”

Despite making no money so far, Ms McLoughlin emphasises that her investments in films have instead granted her once-in-a-lifetime experiences: “I’ve been to the premieres and met the directors. I’ve had an experience with these things [and] met some lovely people.”

Investors must also consider the issue of liquidity, since they are unlikely to be able to sell their shares at will and are usually locked into a business for several years.

Seedrs’ secondary platform, the only secondary crowdfunding market, enables investors to buy and sell shares of Seedrs listed companies. Since its launch in 2017, more than £2.1m has been traded across 314 companies on the market.

Shareholdings may also be diluted. If a business decides to issue more shares, the proportionate shareholding of an original investor will be squeezed.

Andrew Taylor, a finance director from London, has invested £90,000 through both Crowdcube and Syndicate Room. Four of the businesses that he invested in went bust, losing him approximately £50,000. “Those that go bust go bust early on,” he notes.

Despite the high risks that come with this investment approach, Mr Bahl remains unfazed: “I parted with cash knowing that I don’t need it.” Ms Carew echoes this sentiment. “I only ever invest what I can afford to lose.”

Tax perks

Alongside the attractions of investing in a growing business, investors are often enticed by the tax breaks that crowdfunding offers, through the government’s Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS).

EIS offers those who put in up to £1m a tax break of 30 per cent — if they hold on to the shares for at least three years. The tax relief mitigates the amount lost if a business goes bust. For SEIS investments of up to £100,000 per tax year, investors can claim tax relief of 50 per cent.

If an individual invests £50,000 into a SEIS-qualifying business, they receive initial tax relief of £25,000. If the business then goes bust, loss relief is applied according to the investor’s marginal tax rate. A higher rate taxpayer paying 40 per cent income tax receives loss relief of £10,000 — 40 per cent of the £25,000. Therefore the investor may lose £15,000 of a £50,000 investment.

Aware of the tax benefits that equity crowdfunding brings, Mr Murdoch invests 90 per cent in SEIS or EIS eligible businesses and says “it seems worthwhile leveraging.”

Mr Taylor lost £50,000 across four businesses which went bust but says: “The real loss is less than that”, adding that receiving at least half of his money back thanks to tax relief does “lessen the pain”.

Crowdfunding in search of the next Apple or Facebook

Fri, 03/01/2019 - 15:08

How young people are piling their savings into start-ups in search of business ‘unicorns’ by Nikou Asgari from Financial Times

Sahil Bahl, a 24-year-old digital consultant from London, has invested £2,500 in four businesses via crowdfunding websites, ranging from tech start-ups to a coffee chain. The prospect of losing all his money does not worry Mr Bahl. He is in search of a business unicorn.

Online equity crowdfunding platforms — able to link new businesses with a “crowd” of multiple small investors — first emerged in the UK in 2011. The desire of young investors to back young and growing businesses with a disruptive streak is perhaps not surprising. It is possible to invest sums as small as £10 in an array of tech-driven and highly Instagram-worthy UK businesses.

The most popular online platforms — Crowdcube, Seedrs and Syndicate Room — enable businesses seeking capital to post videos as part of their investment pitch, allowing founders to speak directly to the generation that has grown up watching YouTube and Dragons’ Den.

Having stumped up cash to become a shareholder, young investors dream of being in at the start of the next big thing. Apple and Facebook, which started life in bedrooms and garages, are among the world’s most valuable businesses today. Although few ever achieve the near-mythical status of a unicorn — a start-up that grows into a $1bn business — the allure of harnessing one is huge.

The number of 18 to 24-year-olds investing through Crowdcube has nearly quadrupled since 2016 — a surge not seen in any other age group.

A cynic would put such youthful enthusiasm down to naivety. The risks of crowdfunding are high, and investors can lose all of their money if a business goes bust.

But this doesn’t put off young investors like Mr Bahl. FT Money meets the new generation of crowdfunding investors and asks what the traditional investment industry could learn from its growing popularity.

Follow the crowd

Crowdfunding is big business, and the success of household names such as craft beer brand BrewDog and challenger bank Monzo has catapulted the investment class into the mainstream.

Since 2011, UK businesses have raised an average of £629,000 per crowdfunding round, according to data from start-up research company Beauhurst.

In 2016, Monzo set a record for the quickest crowdfund in history, raising £1m in just 96 seconds. In December 2018, it raised £20m over two days; giving the company the status of a unicorn company — a privately owned business valued at $1bn or more.

Monzo investors hope it will become another Crowdcube-listed business to make a positive exit — but only nine exist so far.

Since the platform was founded, 60 per cent of its investors have been younger than 44. Seedrs says 80 per cent of its investors are aged under 50, and Syndicate Room says 57 per cent are under 45. The tangibility of investing in businesses such as tech companies, fashion labels and food and drink brands appeals to younger investors for whom the stock market or pensions may seem boring and distant.

The sums that young investors are prepared to stake are also rising. In 2016, the average 18-24-year-old investor staked just over £306 through Crowdcube. By 2018, this had nearly quintupled to £1,577. This stands in contrast with the overall average investment made on Crowdcube, which fell from £1,697 to £1,298 across the same period.

According to Luke Lang, co-founder of Crowdcube, the most successful companies are “creating their own tribe, are purpose driven and community focused”.

These qualities attracted Shubhangi Sharma, a 22-year-old student, to invest in Monzo.

“For me crowdfunding is a more engaging process than stocks and shares Isas,” she says. “With traditional stocks and shares, it’s hard to assess and understand company ethos and what they stand for and what the actual value offering is. The process of looking at firms [which are] crowdfunding and assessing their new and creative ideas and the specific problems they’re solving is far more interesting and easier to understand.”

Saying she finds crowdfunding “exciting”, Ms Sharma’s interest grew from being a Monzo customer herself and understanding its features. Funding a business that investors use themselves is a common theme.

“I’ve invested in companies where I think there’s a bit of a future, where I understand from a service point of view what they’re offering,” explains Mr Bahl. His £2,500 investment across four crowdfunded businesses also stemmed from Monzo, in which he invested £1,000 in 2016. “That led me into the whole idea of crowdfunding and the realms of alternative investments,” he says.

Although Monzo crowdfunders have yet to receive a penny back on their initial investments, the rapid growth of this and other fintech firms strengthens their belief that it will happen one day — or that, at the very least, the potential upside is worth the risk of an investment. Those willing to put money into crowdfunded equity assets may also sometimes qualify for valuable tax breaks (see below), even though these investments cannot currently be held in a tax-friendly ISA.

Devoted to disrupters

Since 2011, technology has been the most popular sector receiving equity crowdfunding investment in the UK, data from Beauhurst shows. Meanwhile, 12 per cent of equity funding recipients are food and drinks companies — comparatively, only 3 per cent of equity finance from the wider funding landscape goes into the food and drink sector.

In 2015, Camden Town Brewery became the first Crowdcube-listed drinks company to make a positive exit. After raising £2.75m, the brewery was bought by AB InBev, the world’s largest drinks company, for £85m.

Fintech company Revolut is another crowdfunding success story. In 2018, the bank’s investors received 19-fold returns on their original investments. Revolut became the second Crowdcube unicorn, after BrewDog achieved unicorn status in April 2017. The fintech app has also raised money on Seedrs.

Inspired by this trend, Victoria Carew, a 25-year-old adviser in financial services, has invested £268 across four businesses on Seedrs. Her largest investment — £150 — is in Wrisk, an app-based insurance company. “They’re introducing technology to what seems like an archaic industry”, she explains. Within the technology sector, 7 per cent of crowdfunded companies are developing an app, according to Beauhurst.

“Industry disruption” is a key trend in Ms Carew’s investment choices; she invested £66 in Hectare, a GPS land surveying app. “My parents are farmers, it’s quite a backwards, archaic industry. I looked at my parents, the manual process and inventory of, for example, how many sheep they have. An app out here that can do the simple book-taking for you is such a good idea.”

Similarly, three of Mr Bahl’s crowdfunding investments are tech companies, while the fourth is Grind, the open-till-late coffee chain. “Tech companies represent the majority of growth companies today because there’s a belief in the market that they will ultimately deliver revenue and profitability, I’m following that trend.”

He could invest in start-ups listed on the Alternative Investment Market (Aim), the London Stock Exchange’s international market for smaller growing companies, but Mr Bahl disparages: “Do I really know what the Aim companies are and what they do?”

Businesses raising money via crowdfunding engage potential shareholders in ways which are often more exciting than traditional investment options. Crowdfunding websites typically list descriptions and videos of UK-registered businesses seeking capital. On the pitch page, investors can see the share price, valuation, capital requirement, how much has been invested so far and whether the shares include voting rights and tax relief.

Mr Bahl appreciates the details provided: “I could understand what the service was and which venture capitalists or private institutions have also put their money behind it.”

Turning customers into investors

Many crowdfunding businesses seek investment from their existing customers.

David Abrahamovitch, founder of café-bar chain Grind, has twice enticed his customers to invest and is this week looking to replicate the past. The coffee and cocktails chain is launching its third Crowdcube campaign next Friday, seeking £3m.

Rather than looking for venture capital, Mr Abrahamovitch emphasises that raising money through Crowdcube’s “tech platform” makes complete cultural sense for a “young, digital, very Instagram-driven business”.

“A very high proportion of our investors were customers,” he says about previous fundraising, explaining that a mixture of direct marketing, social media and Crowdcube’s own marketing has led to overfunding previously.

Aged 33, Mr Abrahamovitch is one of the oldest at Grind and his employees are mostly in their early 30s or younger. The young business has capitalised the power of Instagram to turn coffee lovers into financiers — a strategy that more traditional firms can learn from.

Grind’s Instagram account has 118,000 followers and its photos are a mix of neon signs, latte art and weekly brunch giveaways, directly appealing to a generation who unapologetically spend money based on aesthetics and experiences.

Unsurprisingly, advertising works to entice young investors who may not have originally been looking to invest.

Ms Carew first spotted Wrisk on London Underground ads. “The advert promoted both the business itself and Seedrs,” she says, adding that it “said something about changing the insurance industry, so really caught my attention”.

Ms Sharma explains that she notices businesses with a buzz. “There’s usually some publicity that has been created around the firm or technology or the fact they’re having a new round of funding. Very rarely do I open and scroll through potential investments.”

Her investment approach distinctly contrasts with that of older investors.

James Murdoch, a 63-year-old business adviser from London, uses crowdfunding to spice up his wider investment portfolio and has invested in 380 separate companies listed on Seedrs. He sees crowdfunding as a way of helping entrepreneurs and also “a relatively low-cost way of getting to know a number of businesses quite quickly”.

“I would not bet my financial future in risky investments,” emphasises Mr Murdoch, saying he puts “small amounts of money in a lot of companies”.

Others treat crowdfunding more like an expensive hobby. Gail McLoughlin, a 59-year-old retired landscape architect from Scotland, has invested £15,000 across numerous film and tech companies, but has yet to make any returns, admitting that crowdfunding is “only for when you’re feeling a bit flush”.

If their high-risk bets on crowdfunded businesses do not come good, younger investors could lose out in the future. They could also fail to maximise the benefits of matched company pension contributions or pensions tax relief.

Ms Carew says she has an Isa and a handful of stocks and shares. Her Seedrs investments, which cannot be held in an Isa, represent 26 per cent of her portfolio. Despite the long odds of discovering a unicorn, Mr Bahl says he understands the risks, and has invested more money in his conventional stocks and shares Isa than his crowdfunding investments.

Regardless, the sums that 18- to 24-year-olds invest in crowdfunding are rising. Between 2016 and 2018, the average amount these investors sank into new businesses on Syndicate Room rose by 60 per cent — to £1,646.

Average amounts raised from experienced investors have risen less sharply. Although 55 to 60-year-old investors on Syndicate Room invested an average of £5,360 in 2018, this has only risen 22 per cent in two years.

“Crowdfunding appeals to behavioural biases,” says David Stevenson, the FT’s Adventurous Investor columnist. “When people are presented with something sexy and higher risk, they go for it.”

One person who understands this investor behaviour is Cecily Mills, the 35-year-old founder of Coconuts Naturally, an organic dairy-free ice cream brand. She says that crowdfunding gained her business “loyal fans and loyal customers”.

The entrepreneur braved BBC2’s Dragons’ Den in September 2018 and shook hands with investor Jenny Campbell, securing £75,000 for a 30 per cent share in her business. But after the cameras stopped rolling, Ms Mills turned down the offer and instead took her company to Seedrs, where she raised £413,000 for a 22 per cent equity stake.

Risky business

Few crowdfunded businesses will achieve unicorn status, let alone make any money at all. “The majority of start-up businesses fail,” states Crowdcube’s website.

Of all UK companies which raised money through a crowdfunding website between 2011 and 2018, 16 per cent are now defunct — they have ceased activity, been dissolved or neglected — compared with 12 per cent of non-crowdfunded businesses, according to Beauhurst.

Some 2 per cent of crowdfunded companies have exited since 2011, after completing an initial public offering or being acquired. This compares with an exit rate of 9 per cent for companies that raised equity through non-crowdfunding platforms.

The data does not paint a pretty picture for crowdfunding investors; the risk of losing everything is high. When this happens, investors are not protected by the Financial Services Compensation Scheme and risk losing all of their money.

Private investing

From algae to tiny spacecraft — the world of wacky investments

Within her £15,000 investments, Ms McLoughlin expects to lose £1,000 to Oobedoo, an on-demand video app for pre-schools, from which she has heard nothing since the death of its founder. Nevertheless, she says: “I don’t feel anxious about that. I don’t lose sleep about that.”

Despite making no money so far, Ms McLoughlin emphasises that her investments in films have instead granted her once-in-a-lifetime experiences: “I’ve been to the premieres and met the directors. I’ve had an experience with these things [and] met some lovely people.”

Investors must also consider the issue of liquidity, since they are unlikely to be able to sell their shares at will and are usually locked into a business for several years.

Seedrs’ secondary platform, the only secondary crowdfunding market, enables investors to buy and sell shares of Seedrs listed companies. Since its launch in 2017, more than £2.1m has been traded across 314 companies on the market.

Shareholdings may also be diluted. If a business decides to issue more shares, the proportionate shareholding of an original investor will be squeezed.

Andrew Taylor, a finance director from London, has invested £90,000 through both Crowdcube and Syndicate Room. Four of the businesses that he invested in went bust, losing him approximately £50,000. “Those that go bust go bust early on,” he notes.

Despite the high risks that come with this investment approach, Mr Bahl remains unfazed: “I parted with cash knowing that I don’t need it.” Ms Carew echoes this sentiment. “I only ever invest what I can afford to lose.”

Tax perks

Alongside the attractions of investing in a growing business, investors are often enticed by the tax breaks that crowdfunding offers, through the government’s Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS).

EIS offers those who put in up to £1m a tax break of 30 per cent — if they hold on to the shares for at least three years. The tax relief mitigates the amount lost if a business goes bust. For SEIS investments of up to £100,000 per tax year, investors can claim tax relief of 50 per cent.

If an individual invests £50,000 into a SEIS-qualifying business, they receive initial tax relief of £25,000. If the business then goes bust, loss relief is applied according to the investor’s marginal tax rate. A higher rate taxpayer paying 40 per cent income tax receives loss relief of £10,000 — 40 per cent of the £25,000. Therefore the investor may lose £15,000 of a £50,000 investment.

Aware of the tax benefits that equity crowdfunding brings, Mr Murdoch invests 90 per cent in SEIS or EIS eligible businesses and says “it seems worthwhile leveraging.”

Mr Taylor lost £50,000 across four businesses which went bust but says: “The real loss is less than that”, adding that receiving at least half of his money back thanks to tax relief does “lessen the pain”.

Crowdfunding in search of the next Apple or Facebook

Fri, 03/01/2019 - 15:08

How young people are piling their savings into start-ups in search of business ‘unicorns’ by Nikou Asgari from Financial Times

Sahil Bahl, a 24-year-old digital consultant from London, has invested £2,500 in four businesses via crowdfunding websites, ranging from tech start-ups to a coffee chain. The prospect of losing all his money does not worry Mr Bahl. He is in search of a business unicorn.

Online equity crowdfunding platforms — able to link new businesses with a “crowd” of multiple small investors — first emerged in the UK in 2011. The desire of young investors to back young and growing businesses with a disruptive streak is perhaps not surprising. It is possible to invest sums as small as £10 in an array of tech-driven and highly Instagram-worthy UK businesses.

The most popular online platforms — Crowdcube, Seedrs and Syndicate Room — enable businesses seeking capital to post videos as part of their investment pitch, allowing founders to speak directly to the generation that has grown up watching YouTube and Dragons’ Den.

Having stumped up cash to become a shareholder, young investors dream of being in at the start of the next big thing. Apple and Facebook, which started life in bedrooms and garages, are among the world’s most valuable businesses today. Although few ever achieve the near-mythical status of a unicorn — a start-up that grows into a $1bn business — the allure of harnessing one is huge.

The number of 18 to 24-year-olds investing through Crowdcube has nearly quadrupled since 2016 — a surge not seen in any other age group.

A cynic would put such youthful enthusiasm down to naivety. The risks of crowdfunding are high, and investors can lose all of their money if a business goes bust.

But this doesn’t put off young investors like Mr Bahl. FT Money meets the new generation of crowdfunding investors and asks what the traditional investment industry could learn from its growing popularity.

Follow the crowd

Crowdfunding is big business, and the success of household names such as craft beer brand BrewDog and challenger bank Monzo has catapulted the investment class into the mainstream.

Since 2011, UK businesses have raised an average of £629,000 per crowdfunding round, according to data from start-up research company Beauhurst.

In 2016, Monzo set a record for the quickest crowdfund in history, raising £1m in just 96 seconds. In December 2018, it raised £20m over two days; giving the company the status of a unicorn company — a privately owned business valued at $1bn or more.

Monzo investors hope it will become another Crowdcube-listed business to make a positive exit — but only nine exist so far.

Since the platform was founded, 60 per cent of its investors have been younger than 44. Seedrs says 80 per cent of its investors are aged under 50, and Syndicate Room says 57 per cent are under 45. The tangibility of investing in businesses such as tech companies, fashion labels and food and drink brands appeals to younger investors for whom the stock market or pensions may seem boring and distant.

The sums that young investors are prepared to stake are also rising. In 2016, the average 18-24-year-old investor staked just over £306 through Crowdcube. By 2018, this had nearly quintupled to £1,577. This stands in contrast with the overall average investment made on Crowdcube, which fell from £1,697 to £1,298 across the same period.

According to Luke Lang, co-founder of Crowdcube, the most successful companies are “creating their own tribe, are purpose driven and community focused”.

These qualities attracted Shubhangi Sharma, a 22-year-old student, to invest in Monzo.

“For me crowdfunding is a more engaging process than stocks and shares Isas,” she says. “With traditional stocks and shares, it’s hard to assess and understand company ethos and what they stand for and what the actual value offering is. The process of looking at firms [which are] crowdfunding and assessing their new and creative ideas and the specific problems they’re solving is far more interesting and easier to understand.”

Saying she finds crowdfunding “exciting”, Ms Sharma’s interest grew from being a Monzo customer herself and understanding its features. Funding a business that investors use themselves is a common theme.

“I’ve invested in companies where I think there’s a bit of a future, where I understand from a service point of view what they’re offering,” explains Mr Bahl. His £2,500 investment across four crowdfunded businesses also stemmed from Monzo, in which he invested £1,000 in 2016. “That led me into the whole idea of crowdfunding and the realms of alternative investments,” he says.

Although Monzo crowdfunders have yet to receive a penny back on their initial investments, the rapid growth of this and other fintech firms strengthens their belief that it will happen one day — or that, at the very least, the potential upside is worth the risk of an investment. Those willing to put money into crowdfunded equity assets may also sometimes qualify for valuable tax breaks (see below), even though these investments cannot currently be held in a tax-friendly ISA.

Devoted to disrupters

Since 2011, technology has been the most popular sector receiving equity crowdfunding investment in the UK, data from Beauhurst shows. Meanwhile, 12 per cent of equity funding recipients are food and drinks companies — comparatively, only 3 per cent of equity finance from the wider funding landscape goes into the food and drink sector.

In 2015, Camden Town Brewery became the first Crowdcube-listed drinks company to make a positive exit. After raising £2.75m, the brewery was bought by AB InBev, the world’s largest drinks company, for £85m.

Fintech company Revolut is another crowdfunding success story. In 2018, the bank’s investors received 19-fold returns on their original investments. Revolut became the second Crowdcube unicorn, after BrewDog achieved unicorn status in April 2017. The fintech app has also raised money on Seedrs.

Inspired by this trend, Victoria Carew, a 25-year-old adviser in financial services, has invested £268 across four businesses on Seedrs. Her largest investment — £150 — is in Wrisk, an app-based insurance company. “They’re introducing technology to what seems like an archaic industry”, she explains. Within the technology sector, 7 per cent of crowdfunded companies are developing an app, according to Beauhurst.

“Industry disruption” is a key trend in Ms Carew’s investment choices; she invested £66 in Hectare, a GPS land surveying app. “My parents are farmers, it’s quite a backwards, archaic industry. I looked at my parents, the manual process and inventory of, for example, how many sheep they have. An app out here that can do the simple book-taking for you is such a good idea.”

Similarly, three of Mr Bahl’s crowdfunding investments are tech companies, while the fourth is Grind, the open-till-late coffee chain. “Tech companies represent the majority of growth companies today because there’s a belief in the market that they will ultimately deliver revenue and profitability, I’m following that trend.”

He could invest in start-ups listed on the Alternative Investment Market (Aim), the London Stock Exchange’s international market for smaller growing companies, but Mr Bahl disparages: “Do I really know what the Aim companies are and what they do?”

Businesses raising money via crowdfunding engage potential shareholders in ways which are often more exciting than traditional investment options. Crowdfunding websites typically list descriptions and videos of UK-registered businesses seeking capital. On the pitch page, investors can see the share price, valuation, capital requirement, how much has been invested so far and whether the shares include voting rights and tax relief.

Mr Bahl appreciates the details provided: “I could understand what the service was and which venture capitalists or private institutions have also put their money behind it.”

Turning customers into investors

Many crowdfunding businesses seek investment from their existing customers.

David Abrahamovitch, founder of café-bar chain Grind, has twice enticed his customers to invest and is this week looking to replicate the past. The coffee and cocktails chain is launching its third Crowdcube campaign next Friday, seeking £3m.

Rather than looking for venture capital, Mr Abrahamovitch emphasises that raising money through Crowdcube’s “tech platform” makes complete cultural sense for a “young, digital, very Instagram-driven business”.

“A very high proportion of our investors were customers,” he says about previous fundraising, explaining that a mixture of direct marketing, social media and Crowdcube’s own marketing has led to overfunding previously.

Aged 33, Mr Abrahamovitch is one of the oldest at Grind and his employees are mostly in their early 30s or younger. The young business has capitalised the power of Instagram to turn coffee lovers into financiers — a strategy that more traditional firms can learn from.

Grind’s Instagram account has 118,000 followers and its photos are a mix of neon signs, latte art and weekly brunch giveaways, directly appealing to a generation who unapologetically spend money based on aesthetics and experiences.

Unsurprisingly, advertising works to entice young investors who may not have originally been looking to invest.

Ms Carew first spotted Wrisk on London Underground ads. “The advert promoted both the business itself and Seedrs,” she says, adding that it “said something about changing the insurance industry, so really caught my attention”.

Ms Sharma explains that she notices businesses with a buzz. “There’s usually some publicity that has been created around the firm or technology or the fact they’re having a new round of funding. Very rarely do I open and scroll through potential investments.”

Her investment approach distinctly contrasts with that of older investors.

James Murdoch, a 63-year-old business adviser from London, uses crowdfunding to spice up his wider investment portfolio and has invested in 380 separate companies listed on Seedrs. He sees crowdfunding as a way of helping entrepreneurs and also “a relatively low-cost way of getting to know a number of businesses quite quickly”.

“I would not bet my financial future in risky investments,” emphasises Mr Murdoch, saying he puts “small amounts of money in a lot of companies”.

Others treat crowdfunding more like an expensive hobby. Gail McLoughlin, a 59-year-old retired landscape architect from Scotland, has invested £15,000 across numerous film and tech companies, but has yet to make any returns, admitting that crowdfunding is “only for when you’re feeling a bit flush”.

If their high-risk bets on crowdfunded businesses do not come good, younger investors could lose out in the future. They could also fail to maximise the benefits of matched company pension contributions or pensions tax relief.

Ms Carew says she has an Isa and a handful of stocks and shares. Her Seedrs investments, which cannot be held in an Isa, represent 26 per cent of her portfolio. Despite the long odds of discovering a unicorn, Mr Bahl says he understands the risks, and has invested more money in his conventional stocks and shares Isa than his crowdfunding investments.

Regardless, the sums that 18- to 24-year-olds invest in crowdfunding are rising. Between 2016 and 2018, the average amount these investors sank into new businesses on Syndicate Room rose by 60 per cent — to £1,646.

Average amounts raised from experienced investors have risen less sharply. Although 55 to 60-year-old investors on Syndicate Room invested an average of £5,360 in 2018, this has only risen 22 per cent in two years.

“Crowdfunding appeals to behavioural biases,” says David Stevenson, the FT’s Adventurous Investor columnist. “When people are presented with something sexy and higher risk, they go for it.”

One person who understands this investor behaviour is Cecily Mills, the 35-year-old founder of Coconuts Naturally, an organic dairy-free ice cream brand. She says that crowdfunding gained her business “loyal fans and loyal customers”.

The entrepreneur braved BBC2’s Dragons’ Den in September 2018 and shook hands with investor Jenny Campbell, securing £75,000 for a 30 per cent share in her business. But after the cameras stopped rolling, Ms Mills turned down the offer and instead took her company to Seedrs, where she raised £413,000 for a 22 per cent equity stake.

Risky business

Few crowdfunded businesses will achieve unicorn status, let alone make any money at all. “The majority of start-up businesses fail,” states Crowdcube’s website.

Of all UK companies which raised money through a crowdfunding website between 2011 and 2018, 16 per cent are now defunct — they have ceased activity, been dissolved or neglected — compared with 12 per cent of non-crowdfunded businesses, according to Beauhurst.

Some 2 per cent of crowdfunded companies have exited since 2011, after completing an initial public offering or being acquired. This compares with an exit rate of 9 per cent for companies that raised equity through non-crowdfunding platforms.

The data does not paint a pretty picture for crowdfunding investors; the risk of losing everything is high. When this happens, investors are not protected by the Financial Services Compensation Scheme and risk losing all of their money.

Private investing

From algae to tiny spacecraft — the world of wacky investments

Within her £15,000 investments, Ms McLoughlin expects to lose £1,000 to Oobedoo, an on-demand video app for pre-schools, from which she has heard nothing since the death of its founder. Nevertheless, she says: “I don’t feel anxious about that. I don’t lose sleep about that.”

Despite making no money so far, Ms McLoughlin emphasises that her investments in films have instead granted her once-in-a-lifetime experiences: “I’ve been to the premieres and met the directors. I’ve had an experience with these things [and] met some lovely people.”

Investors must also consider the issue of liquidity, since they are unlikely to be able to sell their shares at will and are usually locked into a business for several years.

Seedrs’ secondary platform, the only secondary crowdfunding market, enables investors to buy and sell shares of Seedrs listed companies. Since its launch in 2017, more than £2.1m has been traded across 314 companies on the market.

Shareholdings may also be diluted. If a business decides to issue more shares, the proportionate shareholding of an original investor will be squeezed.

Andrew Taylor, a finance director from London, has invested £90,000 through both Crowdcube and Syndicate Room. Four of the businesses that he invested in went bust, losing him approximately £50,000. “Those that go bust go bust early on,” he notes.

Despite the high risks that come with this investment approach, Mr Bahl remains unfazed: “I parted with cash knowing that I don’t need it.” Ms Carew echoes this sentiment. “I only ever invest what I can afford to lose.”

Tax perks

Alongside the attractions of investing in a growing business, investors are often enticed by the tax breaks that crowdfunding offers, through the government’s Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS).

EIS offers those who put in up to £1m a tax break of 30 per cent — if they hold on to the shares for at least three years. The tax relief mitigates the amount lost if a business goes bust. For SEIS investments of up to £100,000 per tax year, investors can claim tax relief of 50 per cent.

If an individual invests £50,000 into a SEIS-qualifying business, they receive initial tax relief of £25,000. If the business then goes bust, loss relief is applied according to the investor’s marginal tax rate. A higher rate taxpayer paying 40 per cent income tax receives loss relief of £10,000 — 40 per cent of the £25,000. Therefore the investor may lose £15,000 of a £50,000 investment.

Aware of the tax benefits that equity crowdfunding brings, Mr Murdoch invests 90 per cent in SEIS or EIS eligible businesses and says “it seems worthwhile leveraging.”

Mr Taylor lost £50,000 across four businesses which went bust but says: “The real loss is less than that”, adding that receiving at least half of his money back thanks to tax relief does “lessen the pain”.

Crowdfunding in search of the next Apple or Facebook

Fri, 03/01/2019 - 15:08

How young people are piling their savings into start-ups in search of business ‘unicorns’ by Nikou Asgari from Financial Times

Sahil Bahl, a 24-year-old digital consultant from London, has invested £2,500 in four businesses via crowdfunding websites, ranging from tech start-ups to a coffee chain. The prospect of losing all his money does not worry Mr Bahl. He is in search of a business unicorn.

Online equity crowdfunding platforms — able to link new businesses with a “crowd” of multiple small investors — first emerged in the UK in 2011. The desire of young investors to back young and growing businesses with a disruptive streak is perhaps not surprising. It is possible to invest sums as small as £10 in an array of tech-driven and highly Instagram-worthy UK businesses.

The most popular online platforms — Crowdcube, Seedrs and Syndicate Room — enable businesses seeking capital to post videos as part of their investment pitch, allowing founders to speak directly to the generation that has grown up watching YouTube and Dragons’ Den.

Having stumped up cash to become a shareholder, young investors dream of being in at the start of the next big thing. Apple and Facebook, which started life in bedrooms and garages, are among the world’s most valuable businesses today. Although few ever achieve the near-mythical status of a unicorn — a start-up that grows into a $1bn business — the allure of harnessing one is huge.

The number of 18 to 24-year-olds investing through Crowdcube has nearly quadrupled since 2016 — a surge not seen in any other age group.

A cynic would put such youthful enthusiasm down to naivety. The risks of crowdfunding are high, and investors can lose all of their money if a business goes bust.

But this doesn’t put off young investors like Mr Bahl. FT Money meets the new generation of crowdfunding investors and asks what the traditional investment industry could learn from its growing popularity.

Follow the crowd

Crowdfunding is big business, and the success of household names such as craft beer brand BrewDog and challenger bank Monzo has catapulted the investment class into the mainstream.

Since 2011, UK businesses have raised an average of £629,000 per crowdfunding round, according to data from start-up research company Beauhurst.

In 2016, Monzo set a record for the quickest crowdfund in history, raising £1m in just 96 seconds. In December 2018, it raised £20m over two days; giving the company the status of a unicorn company — a privately owned business valued at $1bn or more.

Monzo investors hope it will become another Crowdcube-listed business to make a positive exit — but only nine exist so far.

Since the platform was founded, 60 per cent of its investors have been younger than 44. Seedrs says 80 per cent of its investors are aged under 50, and Syndicate Room says 57 per cent are under 45. The tangibility of investing in businesses such as tech companies, fashion labels and food and drink brands appeals to younger investors for whom the stock market or pensions may seem boring and distant.

The sums that young investors are prepared to stake are also rising. In 2016, the average 18-24-year-old investor staked just over £306 through Crowdcube. By 2018, this had nearly quintupled to £1,577. This stands in contrast with the overall average investment made on Crowdcube, which fell from £1,697 to £1,298 across the same period.

According to Luke Lang, co-founder of Crowdcube, the most successful companies are “creating their own tribe, are purpose driven and community focused”.

These qualities attracted Shubhangi Sharma, a 22-year-old student, to invest in Monzo.

“For me crowdfunding is a more engaging process than stocks and shares Isas,” she says. “With traditional stocks and shares, it’s hard to assess and understand company ethos and what they stand for and what the actual value offering is. The process of looking at firms [which are] crowdfunding and assessing their new and creative ideas and the specific problems they’re solving is far more interesting and easier to understand.”

Saying she finds crowdfunding “exciting”, Ms Sharma’s interest grew from being a Monzo customer herself and understanding its features. Funding a business that investors use themselves is a common theme.

“I’ve invested in companies where I think there’s a bit of a future, where I understand from a service point of view what they’re offering,” explains Mr Bahl. His £2,500 investment across four crowdfunded businesses also stemmed from Monzo, in which he invested £1,000 in 2016. “That led me into the whole idea of crowdfunding and the realms of alternative investments,” he says.

Although Monzo crowdfunders have yet to receive a penny back on their initial investments, the rapid growth of this and other fintech firms strengthens their belief that it will happen one day — or that, at the very least, the potential upside is worth the risk of an investment. Those willing to put money into crowdfunded equity assets may also sometimes qualify for valuable tax breaks (see below), even though these investments cannot currently be held in a tax-friendly ISA.

Devoted to disrupters

Since 2011, technology has been the most popular sector receiving equity crowdfunding investment in the UK, data from Beauhurst shows. Meanwhile, 12 per cent of equity funding recipients are food and drinks companies — comparatively, only 3 per cent of equity finance from the wider funding landscape goes into the food and drink sector.

In 2015, Camden Town Brewery became the first Crowdcube-listed drinks company to make a positive exit. After raising £2.75m, the brewery was bought by AB InBev, the world’s largest drinks company, for £85m.

Fintech company Revolut is another crowdfunding success story. In 2018, the bank’s investors received 19-fold returns on their original investments. Revolut became the second Crowdcube unicorn, after BrewDog achieved unicorn status in April 2017. The fintech app has also raised money on Seedrs.

Inspired by this trend, Victoria Carew, a 25-year-old adviser in financial services, has invested £268 across four businesses on Seedrs. Her largest investment — £150 — is in Wrisk, an app-based insurance company. “They’re introducing technology to what seems like an archaic industry”, she explains. Within the technology sector, 7 per cent of crowdfunded companies are developing an app, according to Beauhurst.

“Industry disruption” is a key trend in Ms Carew’s investment choices; she invested £66 in Hectare, a GPS land surveying app. “My parents are farmers, it’s quite a backwards, archaic industry. I looked at my parents, the manual process and inventory of, for example, how many sheep they have. An app out here that can do the simple book-taking for you is such a good idea.”

Similarly, three of Mr Bahl’s crowdfunding investments are tech companies, while the fourth is Grind, the open-till-late coffee chain. “Tech companies represent the majority of growth companies today because there’s a belief in the market that they will ultimately deliver revenue and profitability, I’m following that trend.”

He could invest in start-ups listed on the Alternative Investment Market (Aim), the London Stock Exchange’s international market for smaller growing companies, but Mr Bahl disparages: “Do I really know what the Aim companies are and what they do?”

Businesses raising money via crowdfunding engage potential shareholders in ways which are often more exciting than traditional investment options. Crowdfunding websites typically list descriptions and videos of UK-registered businesses seeking capital. On the pitch page, investors can see the share price, valuation, capital requirement, how much has been invested so far and whether the shares include voting rights and tax relief.

Mr Bahl appreciates the details provided: “I could understand what the service was and which venture capitalists or private institutions have also put their money behind it.”

Turning customers into investors

Many crowdfunding businesses seek investment from their existing customers.

David Abrahamovitch, founder of café-bar chain Grind, has twice enticed his customers to invest and is this week looking to replicate the past. The coffee and cocktails chain is launching its third Crowdcube campaign next Friday, seeking £3m.

Rather than looking for venture capital, Mr Abrahamovitch emphasises that raising money through Crowdcube’s “tech platform” makes complete cultural sense for a “young, digital, very Instagram-driven business”.

“A very high proportion of our investors were customers,” he says about previous fundraising, explaining that a mixture of direct marketing, social media and Crowdcube’s own marketing has led to overfunding previously.

Aged 33, Mr Abrahamovitch is one of the oldest at Grind and his employees are mostly in their early 30s or younger. The young business has capitalised the power of Instagram to turn coffee lovers into financiers — a strategy that more traditional firms can learn from.

Grind’s Instagram account has 118,000 followers and its photos are a mix of neon signs, latte art and weekly brunch giveaways, directly appealing to a generation who unapologetically spend money based on aesthetics and experiences.

Unsurprisingly, advertising works to entice young investors who may not have originally been looking to invest.

Ms Carew first spotted Wrisk on London Underground ads. “The advert promoted both the business itself and Seedrs,” she says, adding that it “said something about changing the insurance industry, so really caught my attention”.

Ms Sharma explains that she notices businesses with a buzz. “There’s usually some publicity that has been created around the firm or technology or the fact they’re having a new round of funding. Very rarely do I open and scroll through potential investments.”

Her investment approach distinctly contrasts with that of older investors.

James Murdoch, a 63-year-old business adviser from London, uses crowdfunding to spice up his wider investment portfolio and has invested in 380 separate companies listed on Seedrs. He sees crowdfunding as a way of helping entrepreneurs and also “a relatively low-cost way of getting to know a number of businesses quite quickly”.

“I would not bet my financial future in risky investments,” emphasises Mr Murdoch, saying he puts “small amounts of money in a lot of companies”.

Others treat crowdfunding more like an expensive hobby. Gail McLoughlin, a 59-year-old retired landscape architect from Scotland, has invested £15,000 across numerous film and tech companies, but has yet to make any returns, admitting that crowdfunding is “only for when you’re feeling a bit flush”.

If their high-risk bets on crowdfunded businesses do not come good, younger investors could lose out in the future. They could also fail to maximise the benefits of matched company pension contributions or pensions tax relief.

Ms Carew says she has an Isa and a handful of stocks and shares. Her Seedrs investments, which cannot be held in an Isa, represent 26 per cent of her portfolio. Despite the long odds of discovering a unicorn, Mr Bahl says he understands the risks, and has invested more money in his conventional stocks and shares Isa than his crowdfunding investments.

Regardless, the sums that 18- to 24-year-olds invest in crowdfunding are rising. Between 2016 and 2018, the average amount these investors sank into new businesses on Syndicate Room rose by 60 per cent — to £1,646.

Average amounts raised from experienced investors have risen less sharply. Although 55 to 60-year-old investors on Syndicate Room invested an average of £5,360 in 2018, this has only risen 22 per cent in two years.

“Crowdfunding appeals to behavioural biases,” says David Stevenson, the FT’s Adventurous Investor columnist. “When people are presented with something sexy and higher risk, they go for it.”

One person who understands this investor behaviour is Cecily Mills, the 35-year-old founder of Coconuts Naturally, an organic dairy-free ice cream brand. She says that crowdfunding gained her business “loyal fans and loyal customers”.

The entrepreneur braved BBC2’s Dragons’ Den in September 2018 and shook hands with investor Jenny Campbell, securing £75,000 for a 30 per cent share in her business. But after the cameras stopped rolling, Ms Mills turned down the offer and instead took her company to Seedrs, where she raised £413,000 for a 22 per cent equity stake.

Risky business

Few crowdfunded businesses will achieve unicorn status, let alone make any money at all. “The majority of start-up businesses fail,” states Crowdcube’s website.

Of all UK companies which raised money through a crowdfunding website between 2011 and 2018, 16 per cent are now defunct — they have ceased activity, been dissolved or neglected — compared with 12 per cent of non-crowdfunded businesses, according to Beauhurst.

Some 2 per cent of crowdfunded companies have exited since 2011, after completing an initial public offering or being acquired. This compares with an exit rate of 9 per cent for companies that raised equity through non-crowdfunding platforms.

The data does not paint a pretty picture for crowdfunding investors; the risk of losing everything is high. When this happens, investors are not protected by the Financial Services Compensation Scheme and risk losing all of their money.

Private investing

From algae to tiny spacecraft — the world of wacky investments

Within her £15,000 investments, Ms McLoughlin expects to lose £1,000 to Oobedoo, an on-demand video app for pre-schools, from which she has heard nothing since the death of its founder. Nevertheless, she says: “I don’t feel anxious about that. I don’t lose sleep about that.”

Despite making no money so far, Ms McLoughlin emphasises that her investments in films have instead granted her once-in-a-lifetime experiences: “I’ve been to the premieres and met the directors. I’ve had an experience with these things [and] met some lovely people.”

Investors must also consider the issue of liquidity, since they are unlikely to be able to sell their shares at will and are usually locked into a business for several years.

Seedrs’ secondary platform, the only secondary crowdfunding market, enables investors to buy and sell shares of Seedrs listed companies. Since its launch in 2017, more than £2.1m has been traded across 314 companies on the market.

Shareholdings may also be diluted. If a business decides to issue more shares, the proportionate shareholding of an original investor will be squeezed.

Andrew Taylor, a finance director from London, has invested £90,000 through both Crowdcube and Syndicate Room. Four of the businesses that he invested in went bust, losing him approximately £50,000. “Those that go bust go bust early on,” he notes.

Despite the high risks that come with this investment approach, Mr Bahl remains unfazed: “I parted with cash knowing that I don’t need it.” Ms Carew echoes this sentiment. “I only ever invest what I can afford to lose.”

Tax perks

Alongside the attractions of investing in a growing business, investors are often enticed by the tax breaks that crowdfunding offers, through the government’s Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS).

EIS offers those who put in up to £1m a tax break of 30 per cent — if they hold on to the shares for at least three years. The tax relief mitigates the amount lost if a business goes bust. For SEIS investments of up to £100,000 per tax year, investors can claim tax relief of 50 per cent.

If an individual invests £50,000 into a SEIS-qualifying business, they receive initial tax relief of £25,000. If the business then goes bust, loss relief is applied according to the investor’s marginal tax rate. A higher rate taxpayer paying 40 per cent income tax receives loss relief of £10,000 — 40 per cent of the £25,000. Therefore the investor may lose £15,000 of a £50,000 investment.

Aware of the tax benefits that equity crowdfunding brings, Mr Murdoch invests 90 per cent in SEIS or EIS eligible businesses and says “it seems worthwhile leveraging.”

Mr Taylor lost £50,000 across four businesses which went bust but says: “The real loss is less than that”, adding that receiving at least half of his money back thanks to tax relief does “lessen the pain”.

Crowdfunding in search of the next Apple or Facebook

Fri, 03/01/2019 - 15:08

How young people are piling their savings into start-ups in search of business ‘unicorns’ by Nikou Asgari from Financial Times

Sahil Bahl, a 24-year-old digital consultant from London, has invested £2,500 in four businesses via crowdfunding websites, ranging from tech start-ups to a coffee chain. The prospect of losing all his money does not worry Mr Bahl. He is in search of a business unicorn.

Online equity crowdfunding platforms — able to link new businesses with a “crowd” of multiple small investors — first emerged in the UK in 2011. The desire of young investors to back young and growing businesses with a disruptive streak is perhaps not surprising. It is possible to invest sums as small as £10 in an array of tech-driven and highly Instagram-worthy UK businesses.

The most popular online platforms — Crowdcube, Seedrs and Syndicate Room — enable businesses seeking capital to post videos as part of their investment pitch, allowing founders to speak directly to the generation that has grown up watching YouTube and Dragons’ Den.

Having stumped up cash to become a shareholder, young investors dream of being in at the start of the next big thing. Apple and Facebook, which started life in bedrooms and garages, are among the world’s most valuable businesses today. Although few ever achieve the near-mythical status of a unicorn — a start-up that grows into a $1bn business — the allure of harnessing one is huge.

The number of 18 to 24-year-olds investing through Crowdcube has nearly quadrupled since 2016 — a surge not seen in any other age group.

A cynic would put such youthful enthusiasm down to naivety. The risks of crowdfunding are high, and investors can lose all of their money if a business goes bust.

But this doesn’t put off young investors like Mr Bahl. FT Money meets the new generation of crowdfunding investors and asks what the traditional investment industry could learn from its growing popularity.

Follow the crowd

Crowdfunding is big business, and the success of household names such as craft beer brand BrewDog and challenger bank Monzo has catapulted the investment class into the mainstream.

Since 2011, UK businesses have raised an average of £629,000 per crowdfunding round, according to data from start-up research company Beauhurst.

In 2016, Monzo set a record for the quickest crowdfund in history, raising £1m in just 96 seconds. In December 2018, it raised £20m over two days; giving the company the status of a unicorn company — a privately owned business valued at $1bn or more.

Monzo investors hope it will become another Crowdcube-listed business to make a positive exit — but only nine exist so far.

Since the platform was founded, 60 per cent of its investors have been younger than 44. Seedrs says 80 per cent of its investors are aged under 50, and Syndicate Room says 57 per cent are under 45. The tangibility of investing in businesses such as tech companies, fashion labels and food and drink brands appeals to younger investors for whom the stock market or pensions may seem boring and distant.

The sums that young investors are prepared to stake are also rising. In 2016, the average 18-24-year-old investor staked just over £306 through Crowdcube. By 2018, this had nearly quintupled to £1,577. This stands in contrast with the overall average investment made on Crowdcube, which fell from £1,697 to £1,298 across the same period.

According to Luke Lang, co-founder of Crowdcube, the most successful companies are “creating their own tribe, are purpose driven and community focused”.

These qualities attracted Shubhangi Sharma, a 22-year-old student, to invest in Monzo.

“For me crowdfunding is a more engaging process than stocks and shares Isas,” she says. “With traditional stocks and shares, it’s hard to assess and understand company ethos and what they stand for and what the actual value offering is. The process of looking at firms [which are] crowdfunding and assessing their new and creative ideas and the specific problems they’re solving is far more interesting and easier to understand.”

Saying she finds crowdfunding “exciting”, Ms Sharma’s interest grew from being a Monzo customer herself and understanding its features. Funding a business that investors use themselves is a common theme.

“I’ve invested in companies where I think there’s a bit of a future, where I understand from a service point of view what they’re offering,” explains Mr Bahl. His £2,500 investment across four crowdfunded businesses also stemmed from Monzo, in which he invested £1,000 in 2016. “That led me into the whole idea of crowdfunding and the realms of alternative investments,” he says.

Although Monzo crowdfunders have yet to receive a penny back on their initial investments, the rapid growth of this and other fintech firms strengthens their belief that it will happen one day — or that, at the very least, the potential upside is worth the risk of an investment. Those willing to put money into crowdfunded equity assets may also sometimes qualify for valuable tax breaks (see below), even though these investments cannot currently be held in a tax-friendly ISA.

Devoted to disrupters

Since 2011, technology has been the most popular sector receiving equity crowdfunding investment in the UK, data from Beauhurst shows. Meanwhile, 12 per cent of equity funding recipients are food and drinks companies — comparatively, only 3 per cent of equity finance from the wider funding landscape goes into the food and drink sector.

In 2015, Camden Town Brewery became the first Crowdcube-listed drinks company to make a positive exit. After raising £2.75m, the brewery was bought by AB InBev, the world’s largest drinks company, for £85m.

Fintech company Revolut is another crowdfunding success story. In 2018, the bank’s investors received 19-fold returns on their original investments. Revolut became the second Crowdcube unicorn, after BrewDog achieved unicorn status in April 2017. The fintech app has also raised money on Seedrs.

Inspired by this trend, Victoria Carew, a 25-year-old adviser in financial services, has invested £268 across four businesses on Seedrs. Her largest investment — £150 — is in Wrisk, an app-based insurance company. “They’re introducing technology to what seems like an archaic industry”, she explains. Within the technology sector, 7 per cent of crowdfunded companies are developing an app, according to Beauhurst.

“Industry disruption” is a key trend in Ms Carew’s investment choices; she invested £66 in Hectare, a GPS land surveying app. “My parents are farmers, it’s quite a backwards, archaic industry. I looked at my parents, the manual process and inventory of, for example, how many sheep they have. An app out here that can do the simple book-taking for you is such a good idea.”

Similarly, three of Mr Bahl’s crowdfunding investments are tech companies, while the fourth is Grind, the open-till-late coffee chain. “Tech companies represent the majority of growth companies today because there’s a belief in the market that they will ultimately deliver revenue and profitability, I’m following that trend.”

He could invest in start-ups listed on the Alternative Investment Market (Aim), the London Stock Exchange’s international market for smaller growing companies, but Mr Bahl disparages: “Do I really know what the Aim companies are and what they do?”

Businesses raising money via crowdfunding engage potential shareholders in ways which are often more exciting than traditional investment options. Crowdfunding websites typically list descriptions and videos of UK-registered businesses seeking capital. On the pitch page, investors can see the share price, valuation, capital requirement, how much has been invested so far and whether the shares include voting rights and tax relief.

Mr Bahl appreciates the details provided: “I could understand what the service was and which venture capitalists or private institutions have also put their money behind it.”

Turning customers into investors

Many crowdfunding businesses seek investment from their existing customers.

David Abrahamovitch, founder of café-bar chain Grind, has twice enticed his customers to invest and is this week looking to replicate the past. The coffee and cocktails chain is launching its third Crowdcube campaign next Friday, seeking £3m.

Rather than looking for venture capital, Mr Abrahamovitch emphasises that raising money through Crowdcube’s “tech platform” makes complete cultural sense for a “young, digital, very Instagram-driven business”.

“A very high proportion of our investors were customers,” he says about previous fundraising, explaining that a mixture of direct marketing, social media and Crowdcube’s own marketing has led to overfunding previously.

Aged 33, Mr Abrahamovitch is one of the oldest at Grind and his employees are mostly in their early 30s or younger. The young business has capitalised the power of Instagram to turn coffee lovers into financiers — a strategy that more traditional firms can learn from.

Grind’s Instagram account has 118,000 followers and its photos are a mix of neon signs, latte art and weekly brunch giveaways, directly appealing to a generation who unapologetically spend money based on aesthetics and experiences.

Unsurprisingly, advertising works to entice young investors who may not have originally been looking to invest.

Ms Carew first spotted Wrisk on London Underground ads. “The advert promoted both the business itself and Seedrs,” she says, adding that it “said something about changing the insurance industry, so really caught my attention”.

Ms Sharma explains that she notices businesses with a buzz. “There’s usually some publicity that has been created around the firm or technology or the fact they’re having a new round of funding. Very rarely do I open and scroll through potential investments.”

Her investment approach distinctly contrasts with that of older investors.

James Murdoch, a 63-year-old business adviser from London, uses crowdfunding to spice up his wider investment portfolio and has invested in 380 separate companies listed on Seedrs. He sees crowdfunding as a way of helping entrepreneurs and also “a relatively low-cost way of getting to know a number of businesses quite quickly”.

“I would not bet my financial future in risky investments,” emphasises Mr Murdoch, saying he puts “small amounts of money in a lot of companies”.

Others treat crowdfunding more like an expensive hobby. Gail McLoughlin, a 59-year-old retired landscape architect from Scotland, has invested £15,000 across numerous film and tech companies, but has yet to make any returns, admitting that crowdfunding is “only for when you’re feeling a bit flush”.

If their high-risk bets on crowdfunded businesses do not come good, younger investors could lose out in the future. They could also fail to maximise the benefits of matched company pension contributions or pensions tax relief.

Ms Carew says she has an Isa and a handful of stocks and shares. Her Seedrs investments, which cannot be held in an Isa, represent 26 per cent of her portfolio. Despite the long odds of discovering a unicorn, Mr Bahl says he understands the risks, and has invested more money in his conventional stocks and shares Isa than his crowdfunding investments.

Regardless, the sums that 18- to 24-year-olds invest in crowdfunding are rising. Between 2016 and 2018, the average amount these investors sank into new businesses on Syndicate Room rose by 60 per cent — to £1,646.

Average amounts raised from experienced investors have risen less sharply. Although 55 to 60-year-old investors on Syndicate Room invested an average of £5,360 in 2018, this has only risen 22 per cent in two years.

“Crowdfunding appeals to behavioural biases,” says David Stevenson, the FT’s Adventurous Investor columnist. “When people are presented with something sexy and higher risk, they go for it.”

One person who understands this investor behaviour is Cecily Mills, the 35-year-old founder of Coconuts Naturally, an organic dairy-free ice cream brand. She says that crowdfunding gained her business “loyal fans and loyal customers”.

The entrepreneur braved BBC2’s Dragons’ Den in September 2018 and shook hands with investor Jenny Campbell, securing £75,000 for a 30 per cent share in her business. But after the cameras stopped rolling, Ms Mills turned down the offer and instead took her company to Seedrs, where she raised £413,000 for a 22 per cent equity stake.

Risky business

Few crowdfunded businesses will achieve unicorn status, let alone make any money at all. “The majority of start-up businesses fail,” states Crowdcube’s website.

Of all UK companies which raised money through a crowdfunding website between 2011 and 2018, 16 per cent are now defunct — they have ceased activity, been dissolved or neglected — compared with 12 per cent of non-crowdfunded businesses, according to Beauhurst.

Some 2 per cent of crowdfunded companies have exited since 2011, after completing an initial public offering or being acquired. This compares with an exit rate of 9 per cent for companies that raised equity through non-crowdfunding platforms.

The data does not paint a pretty picture for crowdfunding investors; the risk of losing everything is high. When this happens, investors are not protected by the Financial Services Compensation Scheme and risk losing all of their money.

Private investing

From algae to tiny spacecraft — the world of wacky investments

Within her £15,000 investments, Ms McLoughlin expects to lose £1,000 to Oobedoo, an on-demand video app for pre-schools, from which she has heard nothing since the death of its founder. Nevertheless, she says: “I don’t feel anxious about that. I don’t lose sleep about that.”

Despite making no money so far, Ms McLoughlin emphasises that her investments in films have instead granted her once-in-a-lifetime experiences: “I’ve been to the premieres and met the directors. I’ve had an experience with these things [and] met some lovely people.”

Investors must also consider the issue of liquidity, since they are unlikely to be able to sell their shares at will and are usually locked into a business for several years.

Seedrs’ secondary platform, the only secondary crowdfunding market, enables investors to buy and sell shares of Seedrs listed companies. Since its launch in 2017, more than £2.1m has been traded across 314 companies on the market.

Shareholdings may also be diluted. If a business decides to issue more shares, the proportionate shareholding of an original investor will be squeezed.

Andrew Taylor, a finance director from London, has invested £90,000 through both Crowdcube and Syndicate Room. Four of the businesses that he invested in went bust, losing him approximately £50,000. “Those that go bust go bust early on,” he notes.

Despite the high risks that come with this investment approach, Mr Bahl remains unfazed: “I parted with cash knowing that I don’t need it.” Ms Carew echoes this sentiment. “I only ever invest what I can afford to lose.”

Tax perks

Alongside the attractions of investing in a growing business, investors are often enticed by the tax breaks that crowdfunding offers, through the government’s Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS).

EIS offers those who put in up to £1m a tax break of 30 per cent — if they hold on to the shares for at least three years. The tax relief mitigates the amount lost if a business goes bust. For SEIS investments of up to £100,000 per tax year, investors can claim tax relief of 50 per cent.

If an individual invests £50,000 into a SEIS-qualifying business, they receive initial tax relief of £25,000. If the business then goes bust, loss relief is applied according to the investor’s marginal tax rate. A higher rate taxpayer paying 40 per cent income tax receives loss relief of £10,000 — 40 per cent of the £25,000. Therefore the investor may lose £15,000 of a £50,000 investment.

Aware of the tax benefits that equity crowdfunding brings, Mr Murdoch invests 90 per cent in SEIS or EIS eligible businesses and says “it seems worthwhile leveraging.”

Mr Taylor lost £50,000 across four businesses which went bust but says: “The real loss is less than that”, adding that receiving at least half of his money back thanks to tax relief does “lessen the pain”.

Crowdfunding in search of the next Apple or Facebook

Fri, 03/01/2019 - 15:08

How young people are piling their savings into start-ups in search of business ‘unicorns’ by Nikou Asgari from Financial Times

Sahil Bahl, a 24-year-old digital consultant from London, has invested £2,500 in four businesses via crowdfunding websites, ranging from tech start-ups to a coffee chain. The prospect of losing all his money does not worry Mr Bahl. He is in search of a business unicorn.

Online equity crowdfunding platforms — able to link new businesses with a “crowd” of multiple small investors — first emerged in the UK in 2011. The desire of young investors to back young and growing businesses with a disruptive streak is perhaps not surprising. It is possible to invest sums as small as £10 in an array of tech-driven and highly Instagram-worthy UK businesses.

The most popular online platforms — Crowdcube, Seedrs and Syndicate Room — enable businesses seeking capital to post videos as part of their investment pitch, allowing founders to speak directly to the generation that has grown up watching YouTube and Dragons’ Den.

Having stumped up cash to become a shareholder, young investors dream of being in at the start of the next big thing. Apple and Facebook, which started life in bedrooms and garages, are among the world’s most valuable businesses today. Although few ever achieve the near-mythical status of a unicorn — a start-up that grows into a $1bn business — the allure of harnessing one is huge.

The number of 18 to 24-year-olds investing through Crowdcube has nearly quadrupled since 2016 — a surge not seen in any other age group.

A cynic would put such youthful enthusiasm down to naivety. The risks of crowdfunding are high, and investors can lose all of their money if a business goes bust.

But this doesn’t put off young investors like Mr Bahl. FT Money meets the new generation of crowdfunding investors and asks what the traditional investment industry could learn from its growing popularity.

Follow the crowd

Crowdfunding is big business, and the success of household names such as craft beer brand BrewDog and challenger bank Monzo has catapulted the investment class into the mainstream.

Since 2011, UK businesses have raised an average of £629,000 per crowdfunding round, according to data from start-up research company Beauhurst.

In 2016, Monzo set a record for the quickest crowdfund in history, raising £1m in just 96 seconds. In December 2018, it raised £20m over two days; giving the company the status of a unicorn company — a privately owned business valued at $1bn or more.

Monzo investors hope it will become another Crowdcube-listed business to make a positive exit — but only nine exist so far.

Since the platform was founded, 60 per cent of its investors have been younger than 44. Seedrs says 80 per cent of its investors are aged under 50, and Syndicate Room says 57 per cent are under 45. The tangibility of investing in businesses such as tech companies, fashion labels and food and drink brands appeals to younger investors for whom the stock market or pensions may seem boring and distant.

The sums that young investors are prepared to stake are also rising. In 2016, the average 18-24-year-old investor staked just over £306 through Crowdcube. By 2018, this had nearly quintupled to £1,577. This stands in contrast with the overall average investment made on Crowdcube, which fell from £1,697 to £1,298 across the same period.

According to Luke Lang, co-founder of Crowdcube, the most successful companies are “creating their own tribe, are purpose driven and community focused”.

These qualities attracted Shubhangi Sharma, a 22-year-old student, to invest in Monzo.

“For me crowdfunding is a more engaging process than stocks and shares Isas,” she says. “With traditional stocks and shares, it’s hard to assess and understand company ethos and what they stand for and what the actual value offering is. The process of looking at firms [which are] crowdfunding and assessing their new and creative ideas and the specific problems they’re solving is far more interesting and easier to understand.”

Saying she finds crowdfunding “exciting”, Ms Sharma’s interest grew from being a Monzo customer herself and understanding its features. Funding a business that investors use themselves is a common theme.

“I’ve invested in companies where I think there’s a bit of a future, where I understand from a service point of view what they’re offering,” explains Mr Bahl. His £2,500 investment across four crowdfunded businesses also stemmed from Monzo, in which he invested £1,000 in 2016. “That led me into the whole idea of crowdfunding and the realms of alternative investments,” he says.

Although Monzo crowdfunders have yet to receive a penny back on their initial investments, the rapid growth of this and other fintech firms strengthens their belief that it will happen one day — or that, at the very least, the potential upside is worth the risk of an investment. Those willing to put money into crowdfunded equity assets may also sometimes qualify for valuable tax breaks (see below), even though these investments cannot currently be held in a tax-friendly ISA.

Devoted to disrupters

Since 2011, technology has been the most popular sector receiving equity crowdfunding investment in the UK, data from Beauhurst shows. Meanwhile, 12 per cent of equity funding recipients are food and drinks companies — comparatively, only 3 per cent of equity finance from the wider funding landscape goes into the food and drink sector.

In 2015, Camden Town Brewery became the first Crowdcube-listed drinks company to make a positive exit. After raising £2.75m, the brewery was bought by AB InBev, the world’s largest drinks company, for £85m.

Fintech company Revolut is another crowdfunding success story. In 2018, the bank’s investors received 19-fold returns on their original investments. Revolut became the second Crowdcube unicorn, after BrewDog achieved unicorn status in April 2017. The fintech app has also raised money on Seedrs.

Inspired by this trend, Victoria Carew, a 25-year-old adviser in financial services, has invested £268 across four businesses on Seedrs. Her largest investment — £150 — is in Wrisk, an app-based insurance company. “They’re introducing technology to what seems like an archaic industry”, she explains. Within the technology sector, 7 per cent of crowdfunded companies are developing an app, according to Beauhurst.

“Industry disruption” is a key trend in Ms Carew’s investment choices; she invested £66 in Hectare, a GPS land surveying app. “My parents are farmers, it’s quite a backwards, archaic industry. I looked at my parents, the manual process and inventory of, for example, how many sheep they have. An app out here that can do the simple book-taking for you is such a good idea.”

Similarly, three of Mr Bahl’s crowdfunding investments are tech companies, while the fourth is Grind, the open-till-late coffee chain. “Tech companies represent the majority of growth companies today because there’s a belief in the market that they will ultimately deliver revenue and profitability, I’m following that trend.”

He could invest in start-ups listed on the Alternative Investment Market (Aim), the London Stock Exchange’s international market for smaller growing companies, but Mr Bahl disparages: “Do I really know what the Aim companies are and what they do?”

Businesses raising money via crowdfunding engage potential shareholders in ways which are often more exciting than traditional investment options. Crowdfunding websites typically list descriptions and videos of UK-registered businesses seeking capital. On the pitch page, investors can see the share price, valuation, capital requirement, how much has been invested so far and whether the shares include voting rights and tax relief.

Mr Bahl appreciates the details provided: “I could understand what the service was and which venture capitalists or private institutions have also put their money behind it.”

Turning customers into investors

Many crowdfunding businesses seek investment from their existing customers.

David Abrahamovitch, founder of café-bar chain Grind, has twice enticed his customers to invest and is this week looking to replicate the past. The coffee and cocktails chain is launching its third Crowdcube campaign next Friday, seeking £3m.

Rather than looking for venture capital, Mr Abrahamovitch emphasises that raising money through Crowdcube’s “tech platform” makes complete cultural sense for a “young, digital, very Instagram-driven business”.

“A very high proportion of our investors were customers,” he says about previous fundraising, explaining that a mixture of direct marketing, social media and Crowdcube’s own marketing has led to overfunding previously.

Aged 33, Mr Abrahamovitch is one of the oldest at Grind and his employees are mostly in their early 30s or younger. The young business has capitalised the power of Instagram to turn coffee lovers into financiers — a strategy that more traditional firms can learn from.

Grind’s Instagram account has 118,000 followers and its photos are a mix of neon signs, latte art and weekly brunch giveaways, directly appealing to a generation who unapologetically spend money based on aesthetics and experiences.

Unsurprisingly, advertising works to entice young investors who may not have originally been looking to invest.

Ms Carew first spotted Wrisk on London Underground ads. “The advert promoted both the business itself and Seedrs,” she says, adding that it “said something about changing the insurance industry, so really caught my attention”.

Ms Sharma explains that she notices businesses with a buzz. “There’s usually some publicity that has been created around the firm or technology or the fact they’re having a new round of funding. Very rarely do I open and scroll through potential investments.”

Her investment approach distinctly contrasts with that of older investors.

James Murdoch, a 63-year-old business adviser from London, uses crowdfunding to spice up his wider investment portfolio and has invested in 380 separate companies listed on Seedrs. He sees crowdfunding as a way of helping entrepreneurs and also “a relatively low-cost way of getting to know a number of businesses quite quickly”.

“I would not bet my financial future in risky investments,” emphasises Mr Murdoch, saying he puts “small amounts of money in a lot of companies”.

Others treat crowdfunding more like an expensive hobby. Gail McLoughlin, a 59-year-old retired landscape architect from Scotland, has invested £15,000 across numerous film and tech companies, but has yet to make any returns, admitting that crowdfunding is “only for when you’re feeling a bit flush”.

If their high-risk bets on crowdfunded businesses do not come good, younger investors could lose out in the future. They could also fail to maximise the benefits of matched company pension contributions or pensions tax relief.

Ms Carew says she has an Isa and a handful of stocks and shares. Her Seedrs investments, which cannot be held in an Isa, represent 26 per cent of her portfolio. Despite the long odds of discovering a unicorn, Mr Bahl says he understands the risks, and has invested more money in his conventional stocks and shares Isa than his crowdfunding investments.

Regardless, the sums that 18- to 24-year-olds invest in crowdfunding are rising. Between 2016 and 2018, the average amount these investors sank into new businesses on Syndicate Room rose by 60 per cent — to £1,646.

Average amounts raised from experienced investors have risen less sharply. Although 55 to 60-year-old investors on Syndicate Room invested an average of £5,360 in 2018, this has only risen 22 per cent in two years.

“Crowdfunding appeals to behavioural biases,” says David Stevenson, the FT’s Adventurous Investor columnist. “When people are presented with something sexy and higher risk, they go for it.”

One person who understands this investor behaviour is Cecily Mills, the 35-year-old founder of Coconuts Naturally, an organic dairy-free ice cream brand. She says that crowdfunding gained her business “loyal fans and loyal customers”.

The entrepreneur braved BBC2’s Dragons’ Den in September 2018 and shook hands with investor Jenny Campbell, securing £75,000 for a 30 per cent share in her business. But after the cameras stopped rolling, Ms Mills turned down the offer and instead took her company to Seedrs, where she raised £413,000 for a 22 per cent equity stake.

Risky business

Few crowdfunded businesses will achieve unicorn status, let alone make any money at all. “The majority of start-up businesses fail,” states Crowdcube’s website.

Of all UK companies which raised money through a crowdfunding website between 2011 and 2018, 16 per cent are now defunct — they have ceased activity, been dissolved or neglected — compared with 12 per cent of non-crowdfunded businesses, according to Beauhurst.

Some 2 per cent of crowdfunded companies have exited since 2011, after completing an initial public offering or being acquired. This compares with an exit rate of 9 per cent for companies that raised equity through non-crowdfunding platforms.

The data does not paint a pretty picture for crowdfunding investors; the risk of losing everything is high. When this happens, investors are not protected by the Financial Services Compensation Scheme and risk losing all of their money.

Private investing

From algae to tiny spacecraft — the world of wacky investments

Within her £15,000 investments, Ms McLoughlin expects to lose £1,000 to Oobedoo, an on-demand video app for pre-schools, from which she has heard nothing since the death of its founder. Nevertheless, she says: “I don’t feel anxious about that. I don’t lose sleep about that.”

Despite making no money so far, Ms McLoughlin emphasises that her investments in films have instead granted her once-in-a-lifetime experiences: “I’ve been to the premieres and met the directors. I’ve had an experience with these things [and] met some lovely people.”

Investors must also consider the issue of liquidity, since they are unlikely to be able to sell their shares at will and are usually locked into a business for several years.

Seedrs’ secondary platform, the only secondary crowdfunding market, enables investors to buy and sell shares of Seedrs listed companies. Since its launch in 2017, more than £2.1m has been traded across 314 companies on the market.

Shareholdings may also be diluted. If a business decides to issue more shares, the proportionate shareholding of an original investor will be squeezed.

Andrew Taylor, a finance director from London, has invested £90,000 through both Crowdcube and Syndicate Room. Four of the businesses that he invested in went bust, losing him approximately £50,000. “Those that go bust go bust early on,” he notes.

Despite the high risks that come with this investment approach, Mr Bahl remains unfazed: “I parted with cash knowing that I don’t need it.” Ms Carew echoes this sentiment. “I only ever invest what I can afford to lose.”

Tax perks

Alongside the attractions of investing in a growing business, investors are often enticed by the tax breaks that crowdfunding offers, through the government’s Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS).

EIS offers those who put in up to £1m a tax break of 30 per cent — if they hold on to the shares for at least three years. The tax relief mitigates the amount lost if a business goes bust. For SEIS investments of up to £100,000 per tax year, investors can claim tax relief of 50 per cent.

If an individual invests £50,000 into a SEIS-qualifying business, they receive initial tax relief of £25,000. If the business then goes bust, loss relief is applied according to the investor’s marginal tax rate. A higher rate taxpayer paying 40 per cent income tax receives loss relief of £10,000 — 40 per cent of the £25,000. Therefore the investor may lose £15,000 of a £50,000 investment.

Aware of the tax benefits that equity crowdfunding brings, Mr Murdoch invests 90 per cent in SEIS or EIS eligible businesses and says “it seems worthwhile leveraging.”

Mr Taylor lost £50,000 across four businesses which went bust but says: “The real loss is less than that”, adding that receiving at least half of his money back thanks to tax relief does “lessen the pain”.

Crowdfunding in search of the next Apple or Facebook

Fri, 03/01/2019 - 15:08

How young people are piling their savings into start-ups in search of business ‘unicorns’ by Nikou Asgari from Financial Times

Sahil Bahl, a 24-year-old digital consultant from London, has invested £2,500 in four businesses via crowdfunding websites, ranging from tech start-ups to a coffee chain. The prospect of losing all his money does not worry Mr Bahl. He is in search of a business unicorn.

Online equity crowdfunding platforms — able to link new businesses with a “crowd” of multiple small investors — first emerged in the UK in 2011. The desire of young investors to back young and growing businesses with a disruptive streak is perhaps not surprising. It is possible to invest sums as small as £10 in an array of tech-driven and highly Instagram-worthy UK businesses.

The most popular online platforms — Crowdcube, Seedrs and Syndicate Room — enable businesses seeking capital to post videos as part of their investment pitch, allowing founders to speak directly to the generation that has grown up watching YouTube and Dragons’ Den.

Having stumped up cash to become a shareholder, young investors dream of being in at the start of the next big thing. Apple and Facebook, which started life in bedrooms and garages, are among the world’s most valuable businesses today. Although few ever achieve the near-mythical status of a unicorn — a start-up that grows into a $1bn business — the allure of harnessing one is huge.

The number of 18 to 24-year-olds investing through Crowdcube has nearly quadrupled since 2016 — a surge not seen in any other age group.

A cynic would put such youthful enthusiasm down to naivety. The risks of crowdfunding are high, and investors can lose all of their money if a business goes bust.

But this doesn’t put off young investors like Mr Bahl. FT Money meets the new generation of crowdfunding investors and asks what the traditional investment industry could learn from its growing popularity.

Follow the crowd

Crowdfunding is big business, and the success of household names such as craft beer brand BrewDog and challenger bank Monzo has catapulted the investment class into the mainstream.

Since 2011, UK businesses have raised an average of £629,000 per crowdfunding round, according to data from start-up research company Beauhurst.

In 2016, Monzo set a record for the quickest crowdfund in history, raising £1m in just 96 seconds. In December 2018, it raised £20m over two days; giving the company the status of a unicorn company — a privately owned business valued at $1bn or more.

Monzo investors hope it will become another Crowdcube-listed business to make a positive exit — but only nine exist so far.

Since the platform was founded, 60 per cent of its investors have been younger than 44. Seedrs says 80 per cent of its investors are aged under 50, and Syndicate Room says 57 per cent are under 45. The tangibility of investing in businesses such as tech companies, fashion labels and food and drink brands appeals to younger investors for whom the stock market or pensions may seem boring and distant.

The sums that young investors are prepared to stake are also rising. In 2016, the average 18-24-year-old investor staked just over £306 through Crowdcube. By 2018, this had nearly quintupled to £1,577. This stands in contrast with the overall average investment made on Crowdcube, which fell from £1,697 to £1,298 across the same period.

According to Luke Lang, co-founder of Crowdcube, the most successful companies are “creating their own tribe, are purpose driven and community focused”.

These qualities attracted Shubhangi Sharma, a 22-year-old student, to invest in Monzo.

“For me crowdfunding is a more engaging process than stocks and shares Isas,” she says. “With traditional stocks and shares, it’s hard to assess and understand company ethos and what they stand for and what the actual value offering is. The process of looking at firms [which are] crowdfunding and assessing their new and creative ideas and the specific problems they’re solving is far more interesting and easier to understand.”

Saying she finds crowdfunding “exciting”, Ms Sharma’s interest grew from being a Monzo customer herself and understanding its features. Funding a business that investors use themselves is a common theme.

“I’ve invested in companies where I think there’s a bit of a future, where I understand from a service point of view what they’re offering,” explains Mr Bahl. His £2,500 investment across four crowdfunded businesses also stemmed from Monzo, in which he invested £1,000 in 2016. “That led me into the whole idea of crowdfunding and the realms of alternative investments,” he says.

Although Monzo crowdfunders have yet to receive a penny back on their initial investments, the rapid growth of this and other fintech firms strengthens their belief that it will happen one day — or that, at the very least, the potential upside is worth the risk of an investment. Those willing to put money into crowdfunded equity assets may also sometimes qualify for valuable tax breaks (see below), even though these investments cannot currently be held in a tax-friendly ISA.

Devoted to disrupters

Since 2011, technology has been the most popular sector receiving equity crowdfunding investment in the UK, data from Beauhurst shows. Meanwhile, 12 per cent of equity funding recipients are food and drinks companies — comparatively, only 3 per cent of equity finance from the wider funding landscape goes into the food and drink sector.

In 2015, Camden Town Brewery became the first Crowdcube-listed drinks company to make a positive exit. After raising £2.75m, the brewery was bought by AB InBev, the world’s largest drinks company, for £85m.

Fintech company Revolut is another crowdfunding success story. In 2018, the bank’s investors received 19-fold returns on their original investments. Revolut became the second Crowdcube unicorn, after BrewDog achieved unicorn status in April 2017. The fintech app has also raised money on Seedrs.

Inspired by this trend, Victoria Carew, a 25-year-old adviser in financial services, has invested £268 across four businesses on Seedrs. Her largest investment — £150 — is in Wrisk, an app-based insurance company. “They’re introducing technology to what seems like an archaic industry”, she explains. Within the technology sector, 7 per cent of crowdfunded companies are developing an app, according to Beauhurst.

“Industry disruption” is a key trend in Ms Carew’s investment choices; she invested £66 in Hectare, a GPS land surveying app. “My parents are farmers, it’s quite a backwards, archaic industry. I looked at my parents, the manual process and inventory of, for example, how many sheep they have. An app out here that can do the simple book-taking for you is such a good idea.”

Similarly, three of Mr Bahl’s crowdfunding investments are tech companies, while the fourth is Grind, the open-till-late coffee chain. “Tech companies represent the majority of growth companies today because there’s a belief in the market that they will ultimately deliver revenue and profitability, I’m following that trend.”

He could invest in start-ups listed on the Alternative Investment Market (Aim), the London Stock Exchange’s international market for smaller growing companies, but Mr Bahl disparages: “Do I really know what the Aim companies are and what they do?”

Businesses raising money via crowdfunding engage potential shareholders in ways which are often more exciting than traditional investment options. Crowdfunding websites typically list descriptions and videos of UK-registered businesses seeking capital. On the pitch page, investors can see the share price, valuation, capital requirement, how much has been invested so far and whether the shares include voting rights and tax relief.

Mr Bahl appreciates the details provided: “I could understand what the service was and which venture capitalists or private institutions have also put their money behind it.”

Turning customers into investors

Many crowdfunding businesses seek investment from their existing customers.

David Abrahamovitch, founder of café-bar chain Grind, has twice enticed his customers to invest and is this week looking to replicate the past. The coffee and cocktails chain is launching its third Crowdcube campaign next Friday, seeking £3m.

Rather than looking for venture capital, Mr Abrahamovitch emphasises that raising money through Crowdcube’s “tech platform” makes complete cultural sense for a “young, digital, very Instagram-driven business”.

“A very high proportion of our investors were customers,” he says about previous fundraising, explaining that a mixture of direct marketing, social media and Crowdcube’s own marketing has led to overfunding previously.

Aged 33, Mr Abrahamovitch is one of the oldest at Grind and his employees are mostly in their early 30s or younger. The young business has capitalised the power of Instagram to turn coffee lovers into financiers — a strategy that more traditional firms can learn from.

Grind’s Instagram account has 118,000 followers and its photos are a mix of neon signs, latte art and weekly brunch giveaways, directly appealing to a generation who unapologetically spend money based on aesthetics and experiences.

Unsurprisingly, advertising works to entice young investors who may not have originally been looking to invest.

Ms Carew first spotted Wrisk on London Underground ads. “The advert promoted both the business itself and Seedrs,” she says, adding that it “said something about changing the insurance industry, so really caught my attention”.

Ms Sharma explains that she notices businesses with a buzz. “There’s usually some publicity that has been created around the firm or technology or the fact they’re having a new round of funding. Very rarely do I open and scroll through potential investments.”

Her investment approach distinctly contrasts with that of older investors.

James Murdoch, a 63-year-old business adviser from London, uses crowdfunding to spice up his wider investment portfolio and has invested in 380 separate companies listed on Seedrs. He sees crowdfunding as a way of helping entrepreneurs and also “a relatively low-cost way of getting to know a number of businesses quite quickly”.

“I would not bet my financial future in risky investments,” emphasises Mr Murdoch, saying he puts “small amounts of money in a lot of companies”.

Others treat crowdfunding more like an expensive hobby. Gail McLoughlin, a 59-year-old retired landscape architect from Scotland, has invested £15,000 across numerous film and tech companies, but has yet to make any returns, admitting that crowdfunding is “only for when you’re feeling a bit flush”.

If their high-risk bets on crowdfunded businesses do not come good, younger investors could lose out in the future. They could also fail to maximise the benefits of matched company pension contributions or pensions tax relief.

Ms Carew says she has an Isa and a handful of stocks and shares. Her Seedrs investments, which cannot be held in an Isa, represent 26 per cent of her portfolio. Despite the long odds of discovering a unicorn, Mr Bahl says he understands the risks, and has invested more money in his conventional stocks and shares Isa than his crowdfunding investments.

Regardless, the sums that 18- to 24-year-olds invest in crowdfunding are rising. Between 2016 and 2018, the average amount these investors sank into new businesses on Syndicate Room rose by 60 per cent — to £1,646.

Average amounts raised from experienced investors have risen less sharply. Although 55 to 60-year-old investors on Syndicate Room invested an average of £5,360 in 2018, this has only risen 22 per cent in two years.

“Crowdfunding appeals to behavioural biases,” says David Stevenson, the FT’s Adventurous Investor columnist. “When people are presented with something sexy and higher risk, they go for it.”

One person who understands this investor behaviour is Cecily Mills, the 35-year-old founder of Coconuts Naturally, an organic dairy-free ice cream brand. She says that crowdfunding gained her business “loyal fans and loyal customers”.

The entrepreneur braved BBC2’s Dragons’ Den in September 2018 and shook hands with investor Jenny Campbell, securing £75,000 for a 30 per cent share in her business. But after the cameras stopped rolling, Ms Mills turned down the offer and instead took her company to Seedrs, where she raised £413,000 for a 22 per cent equity stake.

Risky business

Few crowdfunded businesses will achieve unicorn status, let alone make any money at all. “The majority of start-up businesses fail,” states Crowdcube’s website.

Of all UK companies which raised money through a crowdfunding website between 2011 and 2018, 16 per cent are now defunct — they have ceased activity, been dissolved or neglected — compared with 12 per cent of non-crowdfunded businesses, according to Beauhurst.

Some 2 per cent of crowdfunded companies have exited since 2011, after completing an initial public offering or being acquired. This compares with an exit rate of 9 per cent for companies that raised equity through non-crowdfunding platforms.

The data does not paint a pretty picture for crowdfunding investors; the risk of losing everything is high. When this happens, investors are not protected by the Financial Services Compensation Scheme and risk losing all of their money.

Private investing

From algae to tiny spacecraft — the world of wacky investments

Within her £15,000 investments, Ms McLoughlin expects to lose £1,000 to Oobedoo, an on-demand video app for pre-schools, from which she has heard nothing since the death of its founder. Nevertheless, she says: “I don’t feel anxious about that. I don’t lose sleep about that.”

Despite making no money so far, Ms McLoughlin emphasises that her investments in films have instead granted her once-in-a-lifetime experiences: “I’ve been to the premieres and met the directors. I’ve had an experience with these things [and] met some lovely people.”

Investors must also consider the issue of liquidity, since they are unlikely to be able to sell their shares at will and are usually locked into a business for several years.

Seedrs’ secondary platform, the only secondary crowdfunding market, enables investors to buy and sell shares of Seedrs listed companies. Since its launch in 2017, more than £2.1m has been traded across 314 companies on the market.

Shareholdings may also be diluted. If a business decides to issue more shares, the proportionate shareholding of an original investor will be squeezed.

Andrew Taylor, a finance director from London, has invested £90,000 through both Crowdcube and Syndicate Room. Four of the businesses that he invested in went bust, losing him approximately £50,000. “Those that go bust go bust early on,” he notes.

Despite the high risks that come with this investment approach, Mr Bahl remains unfazed: “I parted with cash knowing that I don’t need it.” Ms Carew echoes this sentiment. “I only ever invest what I can afford to lose.”

Tax perks

Alongside the attractions of investing in a growing business, investors are often enticed by the tax breaks that crowdfunding offers, through the government’s Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS).

EIS offers those who put in up to £1m a tax break of 30 per cent — if they hold on to the shares for at least three years. The tax relief mitigates the amount lost if a business goes bust. For SEIS investments of up to £100,000 per tax year, investors can claim tax relief of 50 per cent.

If an individual invests £50,000 into a SEIS-qualifying business, they receive initial tax relief of £25,000. If the business then goes bust, loss relief is applied according to the investor’s marginal tax rate. A higher rate taxpayer paying 40 per cent income tax receives loss relief of £10,000 — 40 per cent of the £25,000. Therefore the investor may lose £15,000 of a £50,000 investment.

Aware of the tax benefits that equity crowdfunding brings, Mr Murdoch invests 90 per cent in SEIS or EIS eligible businesses and says “it seems worthwhile leveraging.”

Mr Taylor lost £50,000 across four businesses which went bust but says: “The real loss is less than that”, adding that receiving at least half of his money back thanks to tax relief does “lessen the pain”.

Seven Tips For A Successful Crowdfunding Campaign

Sat, 02/16/2019 - 08:05

By David Prosser, Forbes 14 January 2019

With the peer-to-peer finance sector now growing at a rate of 35 per cent a year, increasing numbers of UK-based small and medium-sized enterprises are turning to crowdfunding as a viable source of investment capital. But if you’re thinking about raising money in this way during 2019, don’t assume that the platforms’ continuing expansion means you’re guaranteed to achieve your ambitions. Successful pitches require hard work – both to secure a platform listing in the first place and to persuade lenders and investors to back you with their money. Here’s seven tips for making crowdfunding work.

1. Pick the right platform

Start with the basics. Are you planning to borrow money from investors or ask them to buy an equity stake in your business? The former option may suit more developed companies with reliable cash flows – you’ll need to be able to make regular repayments, including interest. Equity fundraisings, on the other hand, ask investors to buy into future potential with no immediate commitment to pay them a return on their money. But you will be giving up a chunk of your business, possibly at a lowly valuation if the company is young. For more details on which platforms offer what, see the UK Crowdfunding Association.

2. Set out your business plan

Going down the crowdfunding route is not an excuse for a poor-quality business plan. You’ll need a properly constructed plan to get your business listed on a platform – and investors will want to see it too. Your plan should include realistic forecasts for sales and expenses, as well as detail of how you see the company growing. You will also need to explain exactly what you’re raising money for. If in doubt, ask platforms for examples of other people’s business plans so you can see what’s required.

3. Get the pitch right

Your pitch to potential investors is crucial – it represents your one chance to convince them to hand over their money to people they don’t know from Adam. Spend as much time as possible as you can on the pitch, taking advice and feedback wherever it is available. Look at successful pitches on your platform of choice and learn the lessons of these examples. Aim to build a story – where your business has come from, where it’s going, and how investors can share in its success along the way. Video is particularly powerful.

4. Spice up your offer with tax breaks

Check to see whether your equity-based crowdfunding pitch qualifies investors for the seed enterprise investment scheme (SEIS) – if so, make sure you register the business as qualifying. The SEIS and its big brother scheme the EIS offer incredibly valuable tax perks that substantially reduce the risk of investing in a small company. Your investors will be much more relaxed about their starting capital if you can offer SEIS perks.

https://www.forbes.com/sites/davidprosser/2019/01/14/seven-tips-for-a-successful-crowdfunding-campaign/#76e1c5bd56d0

Seven Tips For A Successful Crowdfunding Campaign

Sat, 02/16/2019 - 08:05

By David Prosser, Forbes 14 January 2019

With the peer-to-peer finance sector now growing at a rate of 35 per cent a year, increasing numbers of UK-based small and medium-sized enterprises are turning to crowdfunding as a viable source of investment capital. But if you’re thinking about raising money in this way during 2019, don’t assume that the platforms’ continuing expansion means you’re guaranteed to achieve your ambitions. Successful pitches require hard work – both to secure a platform listing in the first place and to persuade lenders and investors to back you with their money. Here’s seven tips for making crowdfunding work.

1. Pick the right platform

Start with the basics. Are you planning to borrow money from investors or ask them to buy an equity stake in your business? The former option may suit more developed companies with reliable cash flows – you’ll need to be able to make regular repayments, including interest. Equity fundraisings, on the other hand, ask investors to buy into future potential with no immediate commitment to pay them a return on their money. But you will be giving up a chunk of your business, possibly at a lowly valuation if the company is young. For more details on which platforms offer what, see the UK Crowdfunding Association.

2. Set out your business plan

Going down the crowdfunding route is not an excuse for a poor-quality business plan. You’ll need a properly constructed plan to get your business listed on a platform – and investors will want to see it too. Your plan should include realistic forecasts for sales and expenses, as well as detail of how you see the company growing. You will also need to explain exactly what you’re raising money for. If in doubt, ask platforms for examples of other people’s business plans so you can see what’s required.

3. Get the pitch right

Your pitch to potential investors is crucial – it represents your one chance to convince them to hand over their money to people they don’t know from Adam. Spend as much time as possible as you can on the pitch, taking advice and feedback wherever it is available. Look at successful pitches on your platform of choice and learn the lessons of these examples. Aim to build a story – where your business has come from, where it’s going, and how investors can share in its success along the way. Video is particularly powerful.

4. Spice up your offer with tax breaks

Check to see whether your equity-based crowdfunding pitch qualifies investors for the seed enterprise investment scheme (SEIS) – if so, make sure you register the business as qualifying. The SEIS and its big brother scheme the EIS offer incredibly valuable tax perks that substantially reduce the risk of investing in a small company. Your investors will be much more relaxed about their starting capital if you can offer SEIS perks.

https://www.forbes.com/sites/davidprosser/2019/01/14/seven-tips-for-a-successful-crowdfunding-campaign/#76e1c5bd56d0

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