Peer-to-Peer Equity: Crowdcube

With the introduction of p2p lending some lenders wrote that the concept enabled everyone to feel as banker.

Now, newly launched enables any UK resident to feel as venture capitalist for a financial commitment as low as 10 GBP. Investors can browse pitches which usually include business plans and financial projections and sometimes even video pitches.

In return for the investment, investors get shares of the company. For example entrepreneur Daniel Vinson wants to raise 50,000 GBP. He is offering 49% equity in return, meaning investors roughly get 1% shares in return for 1,000 GBP investment. So far 11 investors have pledged 1,200 GBP.

There are 6 entrepreneurs pitching for funding at the moment. Interested investors can answer questions and for some businesses a lively discussion has started.

Crowdcube, founded by Darren Westlake and Luke Lang, launched 2 weeks ago. Crowdcube’s business model is to offer a platform to match entrepreneurs with peer investors and business angels. Costs for entrepreneurs are a success fee of 5% of the funding amount plus legal fees of 1750 GBP for completion of each company investment.  For a limited period they are waiving the 250 GBP listing fee to register as an entrepreneur and add a pitch.

Investors are charged a processing fee by Crowdcube for each transaction equal to the sum of 0.20 GBP plus 4% of the value of the transaction.

While the platform enables mini-investments for very small amounts that would not be possible/feasible without such a p2p equity platform, there are a few downsides for investors to consider:

  • Investments are illiquid as there is no market to trade/sell shares (Crowdcube management says they plan to develop a feature to enable that)
  • The setup is designed that normally the shares have no voting rights (though entrepreneurs can elect to deviate from that setup)
  • There are multiple risks that the business will fail to meet its business plan and not produce any profit for the investor (keep in mind that VCs have the rule of thumb that only 1-2 startups out of 10 prosper).

Investors can add credit to their Crowdcube account balance via credit card, paypal or bank transfer. Investors must be UK residents accroding to the terms and conditions on the site.

I asked Darren Westlake, if regulation reasons prohibit Crowdcube to allow foreign investors to use the service and received a surprising answer:

Actually foreign investors *can* invest and some have. Your last point [in your email query] was correct – we can’t be seen soliciting investors in foreign countries as we can’t be sure that we comply with local laws/regulations.

Did you use Crowdcube? Please share your experience and write a Crowdcube review in the forum. Thanks.

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