This piece is part of a mini-series developed in collaboration with VentureFounders. James Codling, Co-Founder and MD at VentureFounders, explains how the crowdfunding industry has paved the way for a new breed of equity investments.
FinTech has opened up a wealth of new opportunities for investors and massively increased the pool of potential finance for businesses looking for the capital to develop their business.
Crowdfunding in particular has pioneered the way in shaping the modern investment market. However, the market has come a long way since the early crowdfunding campaigns.
Where it was once a way for a small number of consumer-focused businesses to profile their company, so they could drum up publicity and acquire brand ambassadors via funding from a group of “fans”,
it is now a much more mature marketplace.
You’ll now find ground-breaking companies in industries such as fintech, sciences and media turning to equity financing platforms to raise significant growth capital. The market is gaining momentum and with more companies are raising funding on equity platforms, we are now beginning to see bigger ticket sizes and more sophisticated investors backing them.
The need for transparency
With the increase in sophisticated investors using online platforms to invest in scale-up businesses, it is essential that platforms adapt to meet their needs. If an investor is putting in £10k plus of their own money (a trend we see at VentureFounders), they want to be able to see how that investment is performing.
Platforms are increasingly becoming investor-led, rather than deal-led and have developed tools to aid disclosure on investee performance, so investors can monitor their portfolio.
Therefore, as well as catering for this new breed of online investor, it is vital for platforms to have strong ongoing relationships with the businesses they fund, so they can access the company’s performance data and continually update investors – Companies House data is not enough on its own.
Transparent track records are important in the online investment market, which is still relatively new, as they allow investors to make an informed choice about the platform they choose to invest through.
That’s why the FCA has been working to evaluate the industry and put in formalised standards, such as standardised reporting methods, to increase transparency through consistent, reliable data – something of which I am a strong advocate.
Further regulation in the equity crowdfunding sector will help boost the image of the alternative finance industry and in turn increase investor confidence.
I hope to see the recommendations of the FCA to extend to having more realistic valuations for consumer facing brands using crowdfunding to push valuation boundaries, as this has been questionable in the past. Having more data readily available to investors means they can make accurate, informed decisions.
The Rise of Co-Investment
The need for transparency and standards has also partly been driven by the increase in online investment platforms collaborating with traditional investors, such as VCs and Angel investors, to finance a business’ funding round.
Rather than compete, we’re seeing more and more collaboration to offer individual sophisticated investors access to the same opportunities as these institutional investors, while providing the business with additional liquidity to fulfil their business plans. As I have written on my blog, this co-investment model also benefits investors using crowdfunding platforms, as they have confidence that the businesses they are backing have the support of strong networks that will follow their money and re-invest, as well as the expertise offered by VCs, giving them guidance on how best to achieve success.
With sophisticated investors and institutional collaboration in the crowdfunding market, we’re seeing a much more expert, structured approach emerging amongst the major platforms.
In as little as two years, crowdfunding has come on leaps and bounds to increase the reputation of the alternative finance market amongst both the quality investors and businesses who are beginning to see crowdfunding as a serious player in scale-up financing.
About the Author – James Codling
James co-founded VentureFounders in 2014 with the vision of giving ordinary investors access to early-stage opportunities that were previously out of their reach. A dynamic and driven entrepreneur, he wanted to create a new type of equity investment platform; one that gave investors the ability to co-invest in exciting British businesses alongside leading institutional and Angel investors and that aligned itself with its investors to drive longer-term value creation.
As Managing Director, James oversees all aspects of the business, with a particular focus on sourcing, vetting and advising companies that are looking to raise finance through VentureFounders. James has 15 years of private equity experience, having previously held investment roles at J.P. Morgan and Montagu Private Equity. At Montagu, James held directorships in a number of their portfolio companies.