A third of Scottish investors have heard of crowdfunding but still invest via a bank…
A big increase in the number of people starting their own business in Scotland has led to increased demand for alternative financing and in particular for crowdfunding. This is according to equity crowdfunding platform Crowdcube, which opens its first office in Scotland this week to support existing customers in the region and service a strong pipeline of prospective growth businesses and start-ups.
According to the Federation of Small Businesses (FSB), the number of new businesses in Scotland registered with Companies House rose to more than 30,000 last year, up 19 per cent on 2012.
Crowdcube is also looking to attract new investors in Scotland, many of whom are aware of crowdfunding but continue to invest via more traditional methods. According to a poll conducted by YouGov for Crowdcube in July, over a third of Scottish investors have heard of the term, but nearly three-quarters (70 per cent) use either their bank or a stockbroker to invest in start-up businesses.
Darren Westlake, CEO of Crowdcube, says: “Scotland has a very strong entrepreneurial and investment culture, but there has been no strong crowdfunding presence in the region until now. Scottish companies are no different to any other start-up in looking for ways to finance their business – and like any other business, they have found it increasingly difficult to raise money through traditional routes like banks during recent tough economic times.
“Investors are also a key target for us. But it’s interesting to see that although the passion for investment is there – according to YouGov one in five of those who would consider investing in a British start-up would stump up between £2,000 and £5,000 – crowdfunding is not an obvious choice at the moment. We need to change this and make crowdfunding a serious alternative. ”
The Crowdcube office, based in Edinburgh’s Silicon Walk and headed up by Craig McKenna, will support existing customers including Plan Bee, a ground-breaking eco-business that offers managed beehive services to individuals and companies. The Lanarkshire-based company, which came up with the idea as a corporate social responsibility initiative, raised more than £100,000 from 177 investors on the Crowdcube platform earlier this year.
Warren Bader, CEO of Plan Bee, explains: “As a start-up business, you have to think much more creatively nowadays about how you plan to raise money – the usual routes are often closed off to companies like us and alternative methods like crowdfunding are easily within our reach. While many businesses have yet to embrace the concept, it’s a very simple one. Small businesses are the lifeblood of our economy – they generate opportunities, investment and jobs in the region and the industry should be doing everything it can to encourage them to grow and succeed.”
John Foley, an investor in Plan Bee, also believes crowdfunding will create a much more healthy investment community in Scotland: “Angel investment has always been very strong in the region, but we saw that tailing off during the financial crisis and investors are now looking for fresh impetus into what we see as a thriving entrepreneurial culture here. Crowdfunding has effectively democratised investment and made it very exciting once again.”
A new model that lets entrepreneurs showcase their investment opportunity online and bypass the traditional business angel, venture capital or bank route, crowdfunding has been is growing in popularity year on year. Crowdcube has helped raise more than £37 million for 145 pitches over the past three years. The company predicts strong opportunities with food and drink companies, distilleries, tourism and also the thriving tech sector in Scotland.
Legal process outsourcing firm, NewGalexy, became the first Scottish company to raise funds through Crowdcube last year. With offices in Glasgow, London, Chicago and India, NewGalexy raised over £220,000 – double its £100,00 target – to help develop its services providing high quality managed legal support services to large international corporations and law firms.