OWD BY guy rigby, head of entrepreneurs at smith & williamson
high net worth individuals and institutional buyers to raise flexible working capital. According to its website, over £13.5 million has been advanced to over 90 businesses. Rather than waiting 30, 60 or 90 days for large customers to pay, businesses can get access to cash immediately.
Funding Circle, another debt-based model, operates along more traditional crowdfunding lines. Describing itself as “Better for business, better for investors, better all round”, businesses borrow from multiple lenders (aka investors) and lenders can lend to multiple businesses, thereby spreading their risk. The site claims average gross yields of 9.1% for investors (compare that to rates on offer from the banks!) and easy access to their money, while businesses can benefit from quick and convenient one, three or five year loans of between £5,000 and £250,000.
As reward and debt-based crowdfunding become better established and understood, equity-based crowdfunding models are emerging. These offer
investors equity
participation in start-ups or early-stage businesses, carrying high risk and the potential for high reward. The recent Facebook flotation is a good example of the potential rewards available from early-stage investing, but it’s not for the fainthearted. Investors looking for the ‘next big thing’ need to understand that the vast majority of early stage investments either fail, or fail to deliver positive returns to investors.
The best known equity-based crowdfunding platform in the UK is Crowdcube, which imposes strict barriers to entry, insisting that businesses seeking funding must pass rigorous checks. Founded in 2010, it describes itself as a new way to fund start-ups and business expansion by giving entrepreneurs a platform to connect with ordinary people and raise venture capital. It handled the £1 million funding of The Rushmore Group in November 2011, the biggest
equity crowdfunding success to date, with 143 participating investors. Another emerging platform is Seedrs, which is regulated by the Financial Services Authority (FSA), which facilitates investments up to £150,000 from single or multiple investors.
So where to next for crowdfunding? Whilst there are regulatory challenges and there will almost certainly be some accidents along the way, it’s new, it’s here and it’s a welcome alternative for the nation’s entrepreneurs.
For further information on crowdfunding, please contact Guy Rigby on 020 7131 8213 or email guy.rigby@smith.
williamson.co.uk.
Disclaimer By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Smith & Williamson LLP Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International
Nexia Smith & Williamson Audit Limited Registered to carry on audit work and regulated by the Institute of Chartered Accountants in England and Wales for a range of Investment business activities. A member of Nexia International
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