One of the trends in the burgeoning United Kingdom crowdfunding market has been the arrival of specialist platforms focusing on ventures delivering social, environmental or scientific benefits.
The emerging players include Abundance Generation, which has so far facilitated the funding of five renewable energy projects within the UK. On this platform, investors commit cash via 20-25 year transferrable debentures (debt instruments) and these can be bought and sold via the site.
Meanwhile, equity crowdfunding platform Crowdmission.com specialises in ventures offering an “an obvious benefit to society, health or the environment.” Or to put it another way, businesses that make a difference. Once again, green energy is a major theme but the remit runs to scientific projects and businesses supporting charitable activity.
In some cases, the line is blurred between Kickstarter-style donations-based crowdfunding and more commercial models. For instance, Buzzbnk.org – which supports a range of socially beneficial projects – is primarily a donations platform, but businesses or projects can also raise funding from the community via repayable loans.
Crowdmission.com entrepreneur Karen Darby believes there is a real appetite for investment opportunities that combine the potential of a return with involvement in a project that will deliver beneficial outcomes. “I think what we’re seeing is a new generation of entrepreneurs who are interested in starting businesses that will have a social impact but they also want to be able to benefit personally. Equally, I believe there are investors who want to become involved with companies delivering a social good but who want to see a return.”
Darby has a certain amount of form in this area. In 2003 she set up utilities price comparison service Simply Switch with a remit to establish call centres in one of Britain’s most deprived areas. Backed by ‘impact’ fund manager Bridges Community Ventures, the business created 100 jobs and was ultimately sold to Daily Mail newspaper group for £22m.
As she sees it, Simply Switch ticked two important boxes. First and foremost it made a difference by creating jobs where they were needed most, but it also produced a 22 fold return for its investors. It’s a principle she believes can equally be applied to the Crowdfunding model.
The United Kingdom already has a flourishing ‘social enterprise’ sector, which according to the government’s Small Business Survey carried out in 2012 embraces around 70,000 businesses, contributing more than £18bn to the economy. Social Enterprises, by strict definition, are operated on commercial lines but crucially their profits are reinvested rather than being returned to investors. Equally when social enterprises are sold there is no cash-generating exit event for the founder. “A lot of entrepreneurs are disillusioned by that model,” adds Darby. “They want to be able to benefit from the work they’ve done.”
However, as she acknowledges, there potential tensions in creating a business with a social mission that is also intended to deliver returns, not least when the entrepreneur exits. “We didn’t have a mission lock on Simply Switch,” she recalls. Without a mission lock, when a business the new owners aren’t bound by the original remit. However, this can be built into sale agreements.
For would-be investors or lenders, the presence of sites such as Crowdmission and Abundance Energy provide a rapid way to tap into projects that are of personal interest. But what about the companies? Why go to a relatively small – if ambitious platform – when well established players such as Crowdcube or Funding Circle are also open to, say, green-technology or bio-science enterprises?
Darby says it’s partly about hooking up with investors who are sympathetic to the vision and potentially also prepared to go in for the long-haul before seeing any return. “If you have investors who are not entirely motivated by financial gain, they are likely to be more patient,” says Darby.
From one perspective, crowdfunding sites that set out to back ‘impact’ business while also offering a return are a natural extension of donations platforms but with the added piquancy of a potential return. With further growth expected in the equity and debt crowdfunding market in 2014, it will be interesting to see if these specialist operators can succeed in carving out a niche.
Source : Forbes