Information Technology Reference
In-Depth Information
CrowdCube
CrowdCube was formed in 2011 in Exeter in the United Kingdom by Darren
Westlake and Luke Lang. The company is an early pioneer in the new
crowd-
funding
business model. In place of one or two angel investors or venture capital
groups, crowdfunding opens up investments to dozens or even thousands of indi-
viduals whose investments are usually fairly small. This concept is new but has
conventional bankers worried. A report from the Bank of England said that crowd-
sourcing, if successful, could make bank loans obsolete.
In order for crowdfunding to be effective or even legal, it is necessary to gain
approval from various regulatory agencies. One of the reasons CrowdCube is cited
here is because it has received regulatory approval from the U.K. Financial Ser-
vices Authority. CrowdCube is the first U.K. crowdfunding organization to receive
this certification.
This approval is quite recent, having been received in February 2013. There-
fore, it is premature to know how successful the approach will be. CrowdCube has
already attracted more than 28,000 investors and more than £5 million in invest-
ments. These are big numbers for such a new concept.
The crowdfunding model operates on an “all-or-nothing” basis. An entrepren-
eur specifies a target capital amount such as £50,000 and submits a business plan
and relevant data via the CrowdCube website. If the business plan is exciting and
people invest (as little as £10 can be invested), then the startup will receive the
£50,000 or perhaps more in funds. If the total investments fall short of the goal,
then the entrepreneur receives nothing and all funds are returned to the investors,
minus a 5% administrative fee.
This all-or-nothing model is socially and technically interesting because it re-
wards effective business plans and eliminates ineffective plans. It also has the vir-
tue of allowing investments to be made with comparatively low risks.
While crowdfunding will appeal to investors with marginal wealth, it also has
an appeal to very wealthy and very experienced investors. The reason is that since
many startup companies fail quickly, smaller investments in a larger variety of
companies might optimize the chance for investing in a future Google or Facebook
that will become a huge success.
As this topic is being completed, crowdfunding is very new and is not yet avail-
able in every country. However, crowdfunding is using the power of the internet
and the web to create an entirely new channel for investments that could not have
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