Crowdcube: Darren Westlake and Luke Lang
The online platform introducing an alternative investment route to UK businesses and individuals alike
Founded: 2011 Founder: Darren Westlake and Luke Lang Turnover: (approx) £150,000
Since launching in February 2011, Crowdcube has raised more than £2.8m through its online crowdfunding platform. The ground-breaking concept seeks to make angel investment more democratic, by allowing ordinary people to invest as little as £10 in a business with an online funding target, in exchange for equity and rewards.
As well as empowering a nation of ‘armchair dragons', the platform provides a viable alternative to bank finance for small businesses, helping to boost the economy by funding small business growth. However, Crowdcube is also a pioneer of the thriving global crowdfunding movement, becoming a founding member of the international Crowdfunding Accreditation for Platform Standards (CAPS) programme and the Next Generation Finance Consortium – which helps entrepreneurs to access alternative sources of finance.
The market opportunity
With official government figures reporting that one in three small businesses' funding requests were rejected by banks in 2010, there is clearly a significant need for an alternative method of raising finance.
Crowdcube has already become a frontrunner within its sector, after hosting the largest investment raised through a crowdfunding website anywhere in the world (at that time) – £1m in November 2011.
Crowdcube's closest parallel is US-based crowdfunding website Kickstarter.com, which raised $75m (£48.2m) investment finance in its first 28 months. Although – being a US service – Kickstarter is not a direct competitor to Crowdcube, its success does confirm the authenticity of the crowdfunding model.
Furthermore, while Kickstarter offers rewards (such as products, services, discounts or experiences) in return for investment, through Crowdcube investors also receive equity in a business – which may provide a further incentive for individuals to choose it over rival crowdfunding platforms.
Indeed, Crowdcube's UK competitors Peoplefund.it, Pleasefund.us and Sponsume all follow the reward rather than equity model. They (like Kickstarter) are also designed for creative ideas in general, rather than focused on funding business growth.
Crowdcube's closest competitor is SeedUps.com, which also launched in February 2011 and provides equity for business investment (although through a different model). While Crowdcube currently caters exclusively for the UK market, Seedups has the advantage of working in the US, UK and Ireland, where it was founded. However, it also has some limitations; focusing on pre-launch businesses, capping investment targets at £250,000 and only accepting ‘high worth individuals' as investors.
“Whereas our idea of crowdfunding is that it should be inclusive, to become an investor on SeedUps you need to be a sophisticated investor. So theirs is more of a traditional angel network,” Lang says.
“One of the core, founding principles behind Crowdcube was that anyone should be able to invest and they should be able to invest as little as £10. We're really trying to flip the idea of traditional equity finance on its head.”
Crowdcube was three years in the making and was funded in this time by £100,000, loaned from a mixture of the co-founders' friends and family.
In December 2011, the company launched a pitch to raise £300,000 investment through its own crowdfunding platform, in exchange for 9% equity. Crowdcube raised over £20,000 in the first 90 minutes alone and reached their target in just 10 days.
The growth strategy
In terms of marketing, Crowdcube has a relatively self-fulfilling model. Every business which launches a pitch on the website, promotes that pitch to its network of customers and clients – driving traffic back to Crowdcube.com. In the process, these clients are made aware of the crowdfunding platform and may then use it to raise investment themselves.
With Crowdcube earning 5% commission on every successful investment, Lang and Westlake are forecasting revenues of £4.5m in three years. This includes sales of their crowdfunding platform as a white label service overseas – which provides another revenue stream to back up the business model if some investment pitches don't complete.
Lang says: “We're still in the very early stages at the moment but…I see no reason why we cannot become the de facto platform for raising finance in the UK.
“We want, whenever anyone in the country is looking to raise finance for their business, the first name that springs to their mind to be Crowdcube.”
Crowdcube was chosen as one of our Top 20 start-ups of 2011