Investing in a startup through Equity Crowdfunding


#1

Which company(ies)? What made you invest? Are you a customer/ community member of that brand? How much did you invest and why?

Which platform(s)? e.g. Seedrs, Crowdcube. Was the process easy? Did you invest in the company due to finding it on the platform?

What was your rationale behind your investment decision?
What do you believe the pros/cons are of Equity Crowdfunding?


#2

I’ve made my first ever investment on Crowdcube for a company called ‘Blok’. It’s a high-end gym that focuses on dance and yoga classes. I invested as I was already paying a considerable amount for my membership, and there was a nice incentive of a discount and freebies if I invested in them! I invested £500 but defo feel like a more valued member now! I guess it’s made me more loyal to them than their competitors too.

I hadn’t actually heard of Crowdcube before, so Blok actually introduced me to them. Since looking on the platform I wouldn’t say I’m tempted to invest in anything else. I guess to do it again, I’d have to really love and believe in the brand to invest.


#3

@MeganG did you consider the valuation of Blok before making your investment decision? £9.5M pre-money based on £825k revenue in 2017. I’d say 10x revenue is quite a large multiple. I believe many of these companies are raising via the crowd in order to get higher valuations than they could do with experienced angel investors or VCs.


#4

Great topic!! It would be great to find out more. I’m really interested in investing into a brewery or something else that interests me. I’ve been reading a lot about it recently, and I’ve heard positive and negatives but thats to be expected when investing into an early stage company. Things like Monzo and Revolut would be the dream!!


#5

Hey @maike

I’ve invested in a few startups, including Freetrade, Monzo, Grind & Tribe, but nothing more than £200 a turn. My rationale for all 4 investments has been based on being a customer, or ‘brand fan’ as with the case of Grind. Therefore, just kind of wanted to do my bit to support - (and also get the minor perks that come with it… i.e. 20% every order with Tribe etc).

All 4 have been through Crowdcube, pretty seamless process, giving you the opportunity to opt out at anytime before the round closes, and again when they send through the final confirmation. This for me was a real selling point, as sometimes getting in early can be a bit daunting when you’re not 100% sure they’ll even raised the total funds.

Pros - lets you invest in your ‘passions’
Cons - The likelihood of seeing a return on my investment is pretty slim, but hey ho, I felt good about helping them on their way!


#6

Great brands to have invested in! :open_mouth: Did you hear about the companies raising through their own channels or via Crowdcube platform?

I’m curious to know if the investor rights are a concern of yours? Do you know if you have the same rights for each investment you have made? (i.e A shares, B shares, nominee, pre-emption rights). If not, do you think the platforms could do more to give you insight into this, or simplify it for everyday investors?


#7

It’s certainly fair to say that some ecf rounds enjoy valuations that feel inflated at a glance however in most cases there is a lead investor or larger ticket investor in the round before the crowd are given the chance to invest and so it’s also fair to say that in ‘most’ cases the round has been priced by a sophisticated/larger ticket investor. If the crowd are getting the same terms as the lead it doesn’t feel like the crowd are being leveraged to get higher valuations…


#8

I have invested in a number of different companies over the years. I have mainly used Crowdcube but that was more down to the fact that the particular companies I looked at were listed on their site.

Personally, it is a very small part of my portfolio as the risk levels and illiquidity are still a bit of a barrier for me. However, I liked the fact that I could back a number of brands that I was really passionate about and get some rewards along the way, e.g. discounted beer from one of my favourite craft brewers.

The liquidity barrier is starting to reduce with the introduction of Seedrs’ secondary market, so it will be interesting to watch things progress.

Diversification is also so important as I have lost money on businesses that have folded or sold for less than the crowdfunding round. Personally, I have not had any exits but it is still very early days given early stage investing should be a 5-10 year time horizon. Investors need to go in to these investments with their eyes wide open and they need to be willing to lose the money they invest.


#9

I have a portfolio of 11 investments into equity crowdfunding campaigns. Disclaimer - I used to work for Seedrs before going full time on my own business. I believe the fact that larger raises are now taking place on the platforms it is a great opportunity for retail investors to invest alongside professional VC’s.

I invested in Revolut’s Series B on Seedrs alongside Balderton Capital, Index Ventures etc. For me this was the main reason I put in my money, it gave me confidence that they had executed thorough due diligence. Their valuation has now increased from £270M to £1.7B. The Seedrs secondary market is a great feature enabling me to get an exit to another investor who would like to buy in at the new valuation.

I would strongly suggest asking questions on the ‘discussion forum/Q&A section’ and reading all questions from other potential investors. Professional investors always talk about how their decision to invest is mainly off whether they think the founder has the right qualities as opposed to just the idea. You don’t get the chance to meet entrepreneurs via these platforms, so ensure that you quiz them. I’ve seen some entrepreneurs with terrible responses which has persuaded me not to invest. Some platforms like Seedrs also do a monthly pitching events, which is a great opportunity to meet the founders, if you are London based.

Completely agree with the above comments, only risk what you are willing to lose. 9 of 10 probably will fail!


#10

Great insight @chrisrea5, thanks for sharing :+1:


#11

Big news today that Seedrs have launched the Auto Invest tool. I think this will help get a much wider audience investing in equity crowdfunding, where they previously haven’t had the time or knowledge of early stage investing.

However I’m sure critics will be interested to see how these funds are distributed. Hopefully it won’t just go into deals on 90% funded to get them over the line so the platform receive their fee from the startup. I’m sure this won’t be the case and it will be carefully considered by in house experts on the most promising startups.

Personally I think this has been a long time coming as early stage investing is about building a large diverse portfolio, which is time consuming. This will take a lot of the hassle out of picking your own individual deals! Looking forward to seeing an influx of funding into the platform :+1:


#12

Thanks for sharing @chrisrea5, should be really interesting to see how this comes together.


#13

I would argue this is the main selling point of ‘crowdfunding’. Without picking your own individual deals, doesn’t it basically turn into a rubbish version of a robo-advisor?


#14

It is not really valid to compare early stage equity investments with the offerings provided by a robo-advisor. They are very different investment products with very different characteristics. However, I do agree that for many investors equity crowdfunding is interesting as they get to pick their own investments.


#15

I’d argue that people who have made their money in corporate backgrounds may not have the expertise of picking great early stage deals nor do they want to spend the next year carefully selecting 10+ companies to invest into.

I can even see this being integrated with some of the well know robo advisors out there or challenger banks in the future.

Currently the main people investing in equity crowdfunding deals are people that already know and love a certain brand. For this industry to be successful, it needs to get more liquidity, and that’s exactly what this feature should do.


#16

One thought here, an hard earned lesson from my side. Don’t invest / continue to invest in start-ups that don’t have a solid mgt team. My biggest loss came from re-investing (heavily, idiot me) in a start-up whose co-founders bitterly split. There is only so much that a single guy can do to overcome the endless challenges of leading a start-up to success. Stating the obvious here but a lone CEO should be a definitive no-go. Far too risky… In hindsight, I think the crowdfunding platform should not have let people invest in such circumstances.


#17

New FCA rules on complex loan-based crowdfunding