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The crowd, angel networks and VCs - competition or complementary?

Equity crowdfunding - it's here and it's gaining momentum

Although not a new concept, crowdfunding is an increasingly popular means of raising funds, facilitated by today’s plethora of internet based solutions and communication techniques. 

The new generation of crowdfunding solutions gained pace in the US initially, but Europe and the UK have recently seen significant growth in both demand and supply - particularly with regard to equity crowdfunding.

 

Regulatory advantages give UK equity crowdfunding a lead in the marketplace

The US has still to sign off on key provisions of the JOBS Act, aimed at helping firms to raise start-up capital, but the 191 platforms based there still dwarf the 44 in the UK last year. 

However, the UK still has more platforms than anywhere else in Europe and, at least for the moment, benefits from regulatory advantages. 

For the time being, the US is limited to the ‘rewards’ model of funding, whereas the UK can attract equity investment from anywhere in the world. 

It is inevitable that the US sites will, at some point, be in a position to compete, but in the meantime, UK-based operations have an opportunity to build advantage and to establish a firm footing in the market space.

Can equity crowdfunding sit alonside investment from existing business angels, angel networks and early stage VCs?

We recently posted a blog about how we see the evolution and progression of equity crowdfunding taking place in the UK, the market is still young here and some traditional early stage investors have reservations. 

However, we have long espoused that crowdfunding can sit alongside traditional early stage equity finance and ought to be viewed as being complementary rather than revolutionary (see our blog on that subject) and that although it has developed from a disruptive base, it has a place in the mainstream venture finance landscape.

There has been much recent dialogue on how this fit could work – in particular, traditionalists have voiced the opinion that crowdfunding could disaffect potential investors in the form of business angels and that this ‘disruptive’ funding source could alienate rather than ingratiate such investors.

We would beg to differ...

Here in the UK we are currently in a very advantageous position with regard to equity crowdfunding.  Our economic situation is heavily dependent on business regeneration and stimulation to recover and grow – recent initiatives by entities such as Goldmann Sachs’ ‘10k Small Business Programme’, Doug Richards’ ‘School for Start Ups’ et al support this premise. 

Integral to the overall success of such initiatives, as well as the activities of those SMEs who make up a significant part of our trading and employment population, is investment – investment to start, to grow, to thrive.

Where does equity finance come from?

Traditionally, as we know, individual business angels, angel networks and early stage VCs.

And now from crowdfunding too...

And all of these sources are NOT mutually exclusive.

Which is why, it is essential that the VC and angel communities engage with crowdfunding, embrace the concept and recognise it for what it is – not a competitor, but actually a facilitator and aid.

Professionally operated, authorised and transparent equity crowdfunding platforms have the ability to help experienced angel investors, angel networks and early stage VCs to increase dealflow and co-investment opportunities, which inmitigate their risk, access tax-efficient investment opportunities and diversify their portfolios.

Disruptive?  Maybe!  Combative with traditional funding? We don’t think so!  

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Growth Capital Ventures (GCV) is backed by funds managed by Maven Capital Partners, one of the UK’s leading private equity and alternative asset managers.