Crowds exist beyond borders. It’s funny to think of crowd investing as something that happens within the confines of national borders – but in fact it does in most cases. Even within the European Union countries have different laws and regulations as to how much money start-ups may take up on crowd investing platforms and how such deals need to be structured. As a consequence, more or less, British start-ups need to pitch their ideas on British crowd investing websites, Spanish start-ups look out for investors on Spanish platforms and so on. Germany, as usual, is very complicated, too. Actually, German start-ups may only finish crowd investment rounds up to € 100k via crowd investing, if they want to avoid complicated legislation terms – and a costly team of auditors and lawyers.

Think global, act glocal

The founders of Crowdcube found a stunningly simple approach to cut through the jungle of differing country-specific regulations: Crowdcube is a network of locally registered crowd investment companies, which are each owned in half by a local entrepreneur and in half by the central Crowdcube Limited company in the UK. The latter supplies the technical platform with access to a single large database to each local Crowdcube company. Headquarters also offers centralized marketing. And of course, international networks and contacts, which are of vital importance in the entrepreneurial sphere.

The second advantage of large-scale crowd funding is that it democratizes the investment process. Pepe Borrell, CEO of crowdcube.es in Barcelona, tells us that in Spain, for instance, business angels are rare, they often know one another and they form kind of a monopoly. In Borrell’s view, they have too much power and use it too often to push for low valuations of start-ups they invest in. Moreover, crowd investing can be an interesting alternative to single venture capital investors and bank loans (the latter is often impossible to get for high-risk enterprises). Of course, a start-up has to convince more people in the crowd than just a few single investors. But their product or service has to convince a great number of people anyway later on. So the crowd investment process serves in part as a test.

Facts and figures

Crowdcube accelerates start-ups, and moves ahead with speed itself as well. Further locally registered Crowdcube companies opened offices in Italy, Poland, Spain, Sweden, Brasil and New Zealand – more to follow. Over the years since it’s launch in 2011, almost 100k investors successfully funded € 53m (£ 42m) and thereby helped 154 start-ups to take their next steps. The businesses are mostly from the tech, internet, IT, consumer products and foods & drinks sectors. Businesses closed with rounds ranging from £ 12k to almost 2m via Crowdcube. More details you can find on the Crowdcube infographic. 

Investment process and exit

Not any start-up may pitch here. The crowdcubers analyze business ideas, teams, the market, financials and exit options. In a due dilligence process Crowdcube verifies key statements made in every pitch to ensure they contain no misleading information. The selected start-ups may then present themselves with a glimpse of what they do (or what are about to do) to the open public and in more detail to registered Crowdcube users. The founders set an investment target and a time frame. Crowd investors can pledge to buy shares. It’s all or nothing: only if the target is reached by way of pledging, the round closes. Then investors may sleep their decision over 7 nights before the payment service providers stripe.com and gocardless.com wire the pledged money in exchange for shares. Hardly anyone ever cancels during that week, says Borrell from Barcelona.

Registered users, the potential investors or just people interested to know more, may interact with the founders in lively forums where can pose questions and scrutinize the enterprise. For example they discuss whether national or international expansion is more promising in the long run. Or whether the brand name was a good idea. Moreover Financial forecasts and other parts of the business plan can be discussed. The more painful the questions raised, the more helpful to the founders are the answers.

The crowd investment is always a high risk one. Investors can lose their money invested in the short term. But on the other hand, they can make large profits by selling the shares after 3 or 5 years, when the start-up sky rockets.

Across borders

According to Crowdcube, there is a strong interest of UK-based investors in Spanish start-ups (most of which are based in Barcelona or Madrid). And vice versa, Spanish investors are keen on investing in UK start-ups. The British start-up culture is much more lively, further developed and bigger than the Spanish one. That’s why Crowdcube in Spain lets selected start-ups pitch on the UK platform as an experiment to crowdify investments across borders. In return, promising UK pitches will appear on the Spanish platform soon. Different regulations apply in the UK and in Spain, but Crowdcube speaks many legal languages.

Added value

Crowdcube also provides financial forecast services to start-ups as part of their 360° philosophy within the crowd investment process. For instance, Crowdcube helps to refine the business model and tells founders how they can present themselves in a successful way to potential investors. You can even ask Crowdcube when you need help with business plan related issues. That way, founders can focus on their core business and not loose time with financials which they don’t understand anyway – sometimes.

[October 2014; image credits © Crowdcube.com]