Startups in the UK are growing at a phenomenal rate especially in fintech, AI and lifesciences because of its proximity to London and the Universities of Oxford and Cambridge. This growth needs to be fueled by appropriate amount of financial backing. Unfortunately, UK doesn't have large numbers of entrepreneurs such as the US who have made massive exits on their startups and are funding this growth.
From another different perspective - the interest rates offered by the banks in the UK is almost zilch so there is very little incentive for financially healthy people to put their money a savings account. Governments, at this point made a very strategic move in channelizing this money to fund startups. They offered tax subsidies upto 50% to anyone investing in early stage startups. Gradually, there was a huge incentive for rich people to invest in startups.
This led to the rise of a movement in the UK - Equity crowdfunding. Some of the top equity crowdfunding platforms in the UK are Seedrs, Crowdcube, Syndicate Room and Angellist. The first three are focused around UK, while Angellist is an US corporate and moved to Europe recently. Around 150 million pounds were raised in 2015 through equity crowdfunding in the UK.
Seedrs and Crowdcube have a very similar model, where the platform curates the startups, which are then listed on the platform and anyone can participate in the fundraising. Startups only receive funding if they have been able to raise the total amount they wanted to raise - its an all or nothing model.
Syndicate Room has tweaked its model where every startup who needs to raise funding needs to have a lead investor, willing to invest at least 25% of the ask. Syndicate Room claims to have 80% success rate - it is also an all or nothing model. The fact that they already have 25% of the ask before they start, definitely gives them an edge and is also an automatic filter for the platform in selecting the startups it wants to showcase. Having a lead investor on board also reduces the level of due diligence on the platform as the lead investor would have done a thorough due diligence before committing.
Angellist - although has many similarities to Syndicate Room is not truly an equity crowdfunding platform. It does not allow unaccredited investors to participate in the fundraising process - thus, not truly democratizing. Only accredited investors can invest through the formation of a special purpose vehicle. A syndicate is formed by a lead investor, who decides which company to invest in or not to invest in, The lead investor can then reach out to his investor friends who have decided to back him/ her in the syndicate or open it to other accredited investors on the platform. The concept of Special Purpose Vehicle means that the money enters the Balance Sheet of the startup through one entity, which makes future fund raising much simpler.
These are the three models that exist in the equity crowdfunding space and it would be interesting to see which model will dominate the UK market and what is the future of equity crowdfunding. Are any of these platforms going to be big enough to reach an IPO stage? If not, would anyone have an interest in buying these platforms or would they continue to be run independently by the founders?
No comments:
Post a Comment