The pros and cons of the likes of Seedrs, Crowdcube and Trillion Fund.
Investors are ploughing record amounts of cash into crowdfunding.
In 2014, a whopping £84 million was invested into into crowdfunded equities, up from a mere £3.9 million in 2012. This growth is expected to be maintained in 2015 and beyond.
For a guide to just how crowdfunding works, check out What is crowdfunding?
If you want to dip your toe into crowdfunding, which sites should you be looking at? We've run the rule over some of the bigger names.
Seedrs
Type of fundraising: Equity only (regular equity, funds and convertible equity)
Minimum investment: Usually £10
Platform fee: 7.5% of your profits
Main investment risks: Business failure, lack of liquidity.
Seedrs is the only equity crowdfunding platform to offer every single investor full, voting A shares and professional-grade investor protections for each business they invest in, regardless of the amount they invest. There are no unprotected, non-voting B shares, which means your shares cannot be diluted by future fundraising.
It is the only platform open throughout the EU, EEA and Switzerland. Also, it acquired a US-based business late last year and expects to open to US investors later this year.
Large and noteworthy fund-raisings include:
- Seedrs ran the first-ever equity crowdfunding for a publicly listed business, when British wine-maker Chapel Down raised £3.95 million from more than 1,450 investors;
- Peer-to-peer platform Assetz Capital recently raised £3.2 million from 732 investors. Other crowdfunding and peer-to-peer platforms to raise investment on Seedrs include CommuterClub, Trillion Fund and LandBay.
Current live campaigns include:
- Hokkei, a Swansea-based restaurant set up by two MasterChef finalists, which aims to raise £275,000;
- IRISS Medical, a health-tech company looking to raise over £500,000 for eye-scanning technology;
- Rare Pink, an online jewellery retailer looking to raise over £400,000, following a successful seed-stage campaign last year.
Crowdcube
Type of fundraising: Equity (mostly non-voting B shares) and mini-bonds from British businesses.
Minimum investment: £10
Platform fee: None for investors
Main investment risks: For equity investments, a lack of liquidity, lack of dividends, loss of investment and future dilution (for B shares). For bond investments, a lack of liquidity, loss of investment and interest payments, restricted redemption rights and unsecured investments.
Crowdcube launched back in February 2011 and claims to be the world's first equity crowdfunding platform. You invest alongside venture capital firms, seasoned business angels and the UK Government, which is co-investing £5 million through Crowdcube.
So far, 165,000 members have invested over £80 million in more than 240 British business pitches on Crowdcube. This year alone more than 20,000 individual investors have put up over £35 million to fund 50 businesses. You can choose to buy equity stakes in start-up and early-stage businesses, or lend money to more established organisations via corporate mini-bonds in return for regular fixed interest repayments.
For more on how mini-bonds differ from other bonds, read our Beginner's guide to bonds.
Large and noteworthy fund-raisings include:
- Backed by BMW and Index Ventures, JustPark has just raised a record-breaking £3.7 million from almost 3,000 investors;
- Camden Town Brewery recently raised £2.8 million on Crowdcube to fund a new brewery in London;
- Eden Project’s £1.5 million mini-bond to build a learning village was funded in just 20 hours.
Live campaigns include:
- London-based firm Hybrid Air Vehicles has developed Airlander, a low-carbon aircraft that can fly for weeks and take off from land, water or ice. This company aims to raise £2 million in return for 5.49% of its shares and has raised £1.7 million from almost 700 investors so far;
- Wrap It Up!, established in 2006, sells wraps at 11 stores across central London. With a turnover exceeding £3.1 million last year, Wrap It Up! wanted £400,000 for 6.25% of its shares, to fund additional stores and build a new central kitchen. The campaign is now over-funding, with more than 450 people investing more than £650,000 so far.
SyndicateRoom
Type of fundraising: Equity only, investing in same share classes as lead investors and professional business angels. The majority of investments are eligible for tax breaks under EIS or SEIS.
Minimum investment: £1,000
Platform fee: None for investors
Main investment risks: Lack of liquidity, lack of dividends, loss of investment and future dilution.
SyndicateRoom works solely on equity fundraising, with companies aiming to raise between £250,000 and £5 million. Generally, these businesses have been around for at least a year or two, are revenue-generating, and all have a lead investor on board.
This lead investor (whether an individual or group) will complete their own due diligence, negotiate the valuation, and then decide to invest in the company. You invest on the same economic terms as the lead investor, receiving the same share price and share class. SyndicateRoom's notable lead investors include Hermann Hauser (serial angel investor and co-founder of ARM and Acorn Computers), Jonathan Milner (founder of billion-dollar listed company Abcam), Passion Capital and Cambridge Angels.
[SPOTLIGHT]In partnership with Taylor Wessing, SyndicateRoom has launched an Investor's Academy for people new to investing in early-stage businesses. This gives investors tools, tips and insights to make informed early-stage investments.
Large and noteworthy fund-raisings include:
- SyndicateRoom had the first and only crowdfunded initial public offering (IPO), from Mill REIT. Crowd investors invested alongside independent financial adviser networks, traditional private placings and institutions, raising over £2 million in total.
Live campaigns include:
- Sandal claims to be the first crowdfunding deal allowing investors to invest inside tax-free ISAs. Sandal is a cash-generating 'Internet of Things' business which has seen over £3 million in turnover in each of the past three years. It aims to raise £500,000 selling more than 2.63 million shares at 19p each;
- Enval has developed a patented technology that allows for environmentally effective and financially attractive recycling of laminate packaging. Enval is selling 11.94% of its equity for £799,981, at a pre-money company valuation of nearly £5.9 million. Lead investors include Cambridge Capital Group, Cambridge Angels and Anglia Capital Group.
Trillion Fund
Type of fundraising: Debt/mini-bond crowd-funding or peer-to-peer loans for renewable-energy projects
Minimum investment: Varies by venture
Platform fee: None for investors
Main investment risks: Lack of liquidity, loss of investment and interest payments, restricted redemption rights.
Trillion Fund offers peer-to-peer lending to renewable-energy projects, described as an option for more cautious crowdfunders, since they are not lending to high-risk start-ups.
The returns come from the electricity produced by the turbines, rather than the performance of the business raising the cash, with debt-service-cover and loan-to-value ratios in place.
Lenders' money has been secured against turbines already in the ground and operating, removing the construction risk.
Large and noteworthy fund-raisings include:
- Biggest raises so far have been for Endurance, one of the UK's leading turbine manufacturers, and Earthmill, one of the biggest installers, to refinance existing, operational wind turbines in order to build more;
- The first, E2 Energy, was a £1.25 million peer-to-peer loan secured against five turbines. It was over-subscribed and closed six weeks early in August 2014, with 256 lenders. This offered an early-bird rate of 7.5% for the first six weeks and then a rate of 7.25%.
Live campaigns include:
- E5 Energy, a peer-topeer loan, offers a return of 7% (7.5% for early birds) and is currently over-funded at £1.7 million after reaching the £1.25 million tipping point in mid-May, with 405 lenders to date and an average loan of £4,321. The money raised so far is already being used to finance new construction. The total raise could go up to £2.5 million, which would finance 10 turbines.
Abundance Generation
Type of fundraising: Bonds and debentures to fund renewable-energy and community projects
Minimum investment: £5
Platform fee: None for investors
Main investment risks: Lack of liquidity, loss of investment and interest payments, restricted redemption rights
Abundance only offers investments in projects that "work for society and the planet", while also providing investors with long-term, regular incomes.
Abundance investors have helped fund just under £10 million of renewable-energy projects in the UK via debentures. In the future, Abundance aims to fund other forms of socially useful ventures, such as affordable housing, social enterprise and infrastructure projects.
Large and noteworthy fund-raisings include:
- The DistGen Rogershill project involved the RogersHill farm making use of a refurbished wind turbine from Sweden, with a percentage of the gross revenues donated to the local Parish Council for investment back into the local community. It was particularly popular with members, raising the full £860,000 in under eight weeks from 492 investors.
Live campaigns include:
- Oakapple Berwickshire is a solar project with a total target raise of £3.1 million, making it Abundance's biggest project so far. It’s currently just shy of the £1.5 million mark and offers an internal rate of return of 7.5% a year. The project is looking to install solar panels on the roofs of up to 749 homes owned and run by Berwickshire Housing Association.
More on investing:
Beginner's guide to picking a high income fund
Beginner's guide to index tracker funds