Is crowdfunding still hitting the target to catalyse SMEs?

It is a sector that has gained huge traction in recent years, giving consumers the chance to take a modest punt on a start-up - or buy a slice of an established brand.

Tuesday, 6th October 2020, 4:45 pm
BrewDog has raised nearly £43m on Crowdcube. Picture: contributed.
BrewDog has raised nearly £43m on Crowdcube. Picture: contributed.

Crowdfunding has been used to generate funds by a wealth of Scottish businesses, including BrewDog and Innis & Gunn, and has even attracted high-profile endorsement by the likes of Sir Andy Murray.

But firms looking to use such a platform are being encouraged from some quarters to consider other options, on the back of the news that two major players in the sector - Seedrs and Crowdcube - are joining forces, subject to approval, to create a £140 million giant.

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Luke Davis of IW Capital says crowdfunding is not always the best option for scaling businesses. Picture: contributed.

Which Scottish firms have used these platforms?

Seedrs, which in 2015 announced it had signed tennis champion Murray to help foster its growth, has been used by the likes of Zumo, the Edinburgh-based cryptocurrency wallet and exchange platform backed by Coldplay bassist Guy Berryman.

The tech firm last month announced the launch of its first crowdfunding campaign with the platform - exceeding its £1m target to raise £1.6m. And brewer Innis & Gunn turned to the site to help finance its new brewery at Heriot-Watt University, raising more than £3.3m, ahead of its £3m goal.

As for Crowdcube, Edinburgh-based personal finance app Money Dashboard completed a £4.6m funding round in 2019, attracting investment from more than 3,300 investors, while Ellon-based craft beer giant BrewDog has raised nearly £43m altogether on the platform.

What is the reaction to the crowdfunding giants merging?

The UK Crowdfunding Association said the deal creates a “real powerhouse” of start-up and growth finance for smaller firms. “A decade ago, Seedrs and Crowdcube pioneered this important sector, starting a revolution in finance which has been taken up around the world,” the association said.

But some industry observers pointed out the troubled economic climate – and Seedrs says it may itself need to raise funds.

Luke Davis, chief executive and founder of venture capital firm IW Capital, also sounded a note of caution. He said crowdfunding could help start-ups get an idea off the ground, but entrepreneurs need support to both raise the money they need, protect the equity remaining in the business to enable future raises and keep to a business plan.

"Crowdfunding is not always the best option for scaling businesses, and business-leaders need to be made aware of all the options, even just within the private equity space,” he said. “Each business is different – and requires a slightly different approach."

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