Digital Finance and Investment
The Digital Dragon’s Den By Luke Lang, Co-Founder of Crowdcube
in the last hundred years. Most entrepreneurs are forced to go cap in hand to wealthy individuals, pleading for seed investment to kick-start their enterprise.
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Angel networks have taken this principle and charge a fee to introduce or present entrepreneurs seeking finance to registered business angels. Very little information, if any at all, is presented to an angel via the web; the presentation and networking process is entirely face-to- face and any investments are typically carried out directly between the two parties. Angel networks may work well in certain situations but they have not fully exploited basic technological developments in the last decade. Platforms such as the internet could have added a new dimension to their proposition.
The web helps businesses take off
Alternatives to the age-old problem of business finance are emerging from the ashes of the economic bust and the use of technology is a key part of this transformation. Crowdfunding flips the existing paradigm on its head by empowering a ‘crowd’ of ordinary people to pool modest amounts of investment online into a given start-up. Such models that democratise the investment process simply couldn’t exist with technological developments.
The growth of the internet over the last 5 to 10 years has been the catalyst behind the development of many new industries, as well as transforming existing sectors like financial services. Social media has also fuelled this by making it easier now than at any point in history to disseminate a message further and faster. Crowdfunding exploits both these things to great effect. The ability to spread the word about an investment opportunity by tapping into a community, telling friends, family and colleagues for example is at the heart of crowdfunding. Without the ability for a message to proliferate crowdfunding simply wouldn’t work as effectively. This, combined with increased consumer confidence in micro-payment systems, has made it easy for ordinary people to invest in businesses online.
s a start-up or early stage business, securing investment is notoriously difficult and hasn’t changed a great deal
...and fly
Technology can also play a vital role in helping entrepreneurs to communicate and manage their investor’s post funding. Messaging functions and private forums will facilitate the flow of information and integration with Companies House will mean a large share register can be maintained with minimum fuss.
Organisations such as Crowdcube are seeking to change the equity finance landscape in the UK in response to growing demand for alternative sources of business finance. Funding Circle is creating a similar revolution in the debt-finance market and MarketInvoice with debt- factoring.
Wisdom of the crowd
Crowdfunding is democracy working at its naked best, with small businesses using it to connect with ordinary people. The public decides what funds and what does not, and so through a process of natural selection the ‘wisdom of the crowd’ collectively makes a decision on which business successfully reaches its investment target.
The investment market has long-needed a more egalitarian approach and crowdfunding makes it easier for anybody to invest. It will give enterprises a better chance of securing capital and engaging with stakeholders, as well as injecting a vital boost to Britain’s economic recovery.
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