Dragon’s Den has brought the concept of angel investment into the living rooms of nearly five million Brits, so there must be few people who haven’t – at least once – seen a business leave the Den without investment and thought, ‘I would have put a bit of money into that.’ Enter Darren Westlake and Luke Lang, founding fathers of Crowdcube.com.
“What makes Crowdcube unique is that it’s the only web-based crowdfunding service in the UK that offers ordinary people the opportunity to invest in real start-up and growing businesses — empowering a nation of arm chair dragons,” says Lang.
The concept is simple. Entrepreneurs write a pitch for investment, upload it to the website, then anybody has the opportunity to invest as little as £10 until the target is met. The entrepreneur gets the funding they require, the civilian investors get shares in the company, and Crowdcube receives 5% commission from the money raised. If the target isn’t met, the money is simply refunded to the investors and the entrepreneur looks for investment elsewhere, without any charge from Crowdcube for having a go.
Having spent three years and nearly £100,000 – loaned from a mixture of friends and family – in construction, Crowdcube launched in February 2011, to much noise from the media. “It’s a unique story. It’s very easy to understand, and that’s made it very powerful for journalists. In the current economic climate, an alternative route to finance is very interesting to people,” says Lang.
To read the press about Crowdcube, it would seem that Bubble & Balm has become almost synonymous with the business’ success, after it became the first company to raise a significant investment through the website – £75,000 from 82 investors, each contributing between £10 and £7,500 and proportionally splitting 15% of equity amongst them. More notably, £46,000 of that investment was raised in the final 19 days and by the time the firm met their funding target it was oversubscribed.
However, despite Crowdcube’s success in securing press coverage, proving the credibility of the service was more trying. “Spreading the word is often a challenge [as is letting] British entrepreneurs know that there is an alternative to going to the banks and angel networks… After Bubble & Balm hit its target, that gave Crowdcube that extra bit of credence and credibility. I think a lot of businesses were sitting back, waiting and seeing what happened and, as soon as the model became proven, within a few days we had over 20 businesses come to us,” Lang says.
Explaining Bubble & Balm’s success, Lang says, “The founder was very tenacious in how she promoted her pitch and was a very active pitch owner. That’s really important. They know the people out there that are already aware of their company and are more likely to want to invest.”
In that respect Crowdcube is a relatively self-fulfilling business model, minimising the need for a hefty start-up marketing budget. Businesses post a pitch on the website, promote the page widely, and consequently drive traffic to the site. Every investor who contributes to that pitch theoretically then spreads the word amongst their networks, helping the funding target to be met, and to raise awareness of a company they now have a vested interest in – raising Crowdcube’s profile further.
According to Lang, this is a key benefit of e-business: the potential to get a message out virally via digital marketing. Indeed, the website has been such a success that the founders are now considering using the service to raise investment for Crowdcube itself and Lang would encourage other entrepreneurs to take this innovative approach to fund raising.
“Just because something hasn’t been done before, doesn’t mean it can’t be done. We certainly had a lot of people, when we started talking about Crowdcube, saying ‘You can’t do it that way.’ You have to believe it, you have to be brave, you have to stick to your plans and work really hard.
“We firmly believe that Crowdcube is the future of business finance in the UK and there’s no reason why in five or ten years’ time it can’t become the default platform for small and medium-sized business looking to raise finance. We’ve made a real point to break down those barriers and make Crowdcube obtainable for all types of business.”