25th November 2015
We've raised more than £4m over 16 months of successful trading and have no late payments, defaults or failures.
Following lots of recent news about the initial results on the performance of equity crowdfunding we decided that it would be appropriate to respond on behalf of the broader P2P and crowdfunding sector. Fundamentally it is important to differentiate from the various types of crowdfunding, crowdfunding is predominantly dominated by equity and donation based – both types of which have attracted some recent attention with some initial Kick Starter projects failing and also the initial data analysis of equity crowdfunding in the UK clearly demonstrating a questionable performance as an asset class – it is still early days though.
Debt-based crowdfunding is a fundamentally different type of investment to equity or donation-based crowdfunding. Comprehensive due diligence is conducted on all businesses before they are listed to confirm affordability of the loan repayments, similar to the checks a bank would conduct. Debt-based crowdfunding is similar to peer to peer lending but where more interesting businesses are listed and with the possibility of receiving exciting rewards in exchange for an investment.
Lets take Ruroc as an example, an innovative and established British ski business that successfully raised £168k from 69 investors via Crowd2Fund recently. Ruroc, unlike projects and business that are listed on donation or equity crowdfunding sites, are established and credit worthy. They generate more than £1m per year in revenue resulting in £69k in post-tax profit. Clearly they can afford a loan of £168k spread over 3-4 years. Not only was this opportunity offering a huge 10% APR but also for every £1,000 investment Ruroc were providing a free ski helmet worth £250 for every investment – this is a great example of brands leveraging their tangible products to attract lower cost investment.
Debt-based crowdfunding allows investors to back projects they love, get access to great rewards – the same as donation or equity crowdfunding - but also be much clearer on the expected financial return, which is also often very generous.
Our successful performance of investments to date is of course mainly due to an excellent risk and due diligence team, however, the overall process of raising funds via Crowd2Fund is simply a good way to do business and grow a business. As a business, crowdfunding allows you to form a team of investors, usually highly expected and well connected who can support the business growth. It also allows businesses to offer their customers something different. Customers want to invest in brand that they buy from and love.
All of this, in turn, supports the overall business growth – and most importantly helps protect investor returns.
