The Increase of Crowdfunding in the UK
The JOBS Act of 2012 gave rise to a whole new industry in the U.S. Crowdfunding has grown by leaps and bounds all over the world, but nowhere has it grown as quickly and broadly as it has in the United Kingdom.
According to an article published in Forbes last year, alternative funding in the UK increased 91% from 2011 to 2012. Peer-to-peer lending grew by 211% and equity crowdfunding grew a whopping 618% in the UK during the same time period. Since 2011, an estimated 5,000 SMEs have accessed early stage, growth, or working capital through alternative funding platforms. Many of these are businesses that couldn’t get anywhere near an angel investor or venture capitalist a few years ago.
In 2014, crowdfunding grew even more. Crowdfund Insider reported an increase of 201% in equity-based crowdfunding that year and a 300% increase in investment-based and loan-based crowdfunding.
All of this demand for alternative finance has given rise to many new crowdfunding platforms in the UK.
CrowdingIn, a UK crowdfunding platform directory, has almost 100 companies currently listed in its database. Those companies are categorized as either donation-based, reward-based, equity-based, or lending-based sites. Companies are also categorized by special areas of interest, which may include sites that fund businesses or offer creative financial solutions in the marketplace, those that work with social agencies or seek to provide a social good, and those that work with arts and creativity organizations.
What’s Driving the Growth of Crowdfunding in the UK?
There are a number of factors that could be driving the growth of crowdfunding in the UK. One of those is the fact that there simply isn’t a lot of other funding options for a many startup companies. In 2014, the UK addressed protections for companies and investors by introducing legislation to regulate crowdfunding platforms. That certainly went a long way to easing some of the fears and concerns surrounding this nascent new industry.
On the other hand, the Financial Conduct Authority (FCA) has been reluctant to be too heavy handed because they see the new industry getting along quite well as it is. Their primary concern is with promotions of crowdfunding platforms, though they will continue to monitor the industry and take regulatory action as necessary. It is likely the lack the regulation that has kept the industry growing.
Look Out for Future UK Equity Crowdfunding Growth
It was just a couple of months ago when Funding Circle, a five-year-old crowdfunding platform in the UK, announced it had completed a $150 million fundraising round. The company is now valued at $1 billion. That’s a pretty significant achievement for an industry so young.
While peer-to-peer financing seems to be the dominant force in UK crowdfunding right now, that doesn’t mean that equity-based crowdfunding won’t soon pick up the slack. UK entrepreneurs are determined and driven. Both Crowdcube and Seedrs are equity-based crowdfunding platforms in the UK that have achieved a level of notoriety to date. They are poised for further growth and should see continued success. I also expect to see new players enters the field sometime soon.
Seedrs, while based in the UK, is open to investors and entrepreneurs throughout Europe, which gives it a unique place in crowdfunding culture. It’s also why the company has done so well.
As the world grows smaller and more connected, you can expect crowdfunding platforms to appeal to more investors and more entrepreneurs all across the globe. Sites that allow small investors to put their money into companies they believe in across international boundaries and through currency conversions will perform best. Many of those companies will be chartered in the United Kingdom.