Crowdcube breaks record raising money for its own expansion

Crowdcube was inundated with pledges on its preregistration site for a funding round to raise a planned £5m ($7m) to fund the creation of a secondary-market trading platform. As we reported last month, the UK equity crowdfunding platform intends to build a platform to trade stakes in any private UK company, offering investors an alternative exit to a trade sale or IPO. Crowdcube attracted around £39m in pledges before raising the round to £8m, breaking the previous record of £4m raised by GoHenry, the debit card with parental controls for children.

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U.K. equity crowdfunding platform Crowdcube announced that it planned to raise £5 million ($7 million) from its members in July and attracted around £39 million ($51 million) in pledges on its preregistration site.

Last week, itrevealed that the final volume raised was £8 million ($11 million). This is the largest UK crowdfunding round to date, and more than double the previous record of £4 million ($5 million), raised by money management fintech GoHenry.

It plans to use the money to create a platform for secondary trading. Investors who buy a stake in a private company, via equity crowdfunding or other means, typically only get a return if the company is sold or listed. Crowdcube plans to create a platform that will enable shareholders in any UK private company to sell their stake to other investors, offering a quicker route to returns. Both professional investors and the inexperienced investors who make up the bulk of Crowdcube's "crowd" will be able to use the platform. This concept is similar to that used by US firm NASDAQ Private Market, which enables investors to trade stakes in private companies.

But there are a number of hurdles that Crowdcube's platform will have to overcome in order to be successful:

Protecting investors' tax breaks. In the UK, investors who buy shares in small businesses qualify for certain tax breaks. But in order to realise those benefits, investors must hold onto the shares for at least three years. Crowdcube will have to find a way to make sure investors who sell early don't lose out, otherwise trading volumes on the secondary market would likely be limited.

In the UK, investors who buy shares in small businesses qualify for certain tax breaks. But in order to realise those benefits, investors must hold onto the shares for at least three years. Crowdcube will have to find a way to make sure investors who sell early don't lose out, otherwise trading volumes on the secondary market would likely be limited. A secondary market could cause fluctuations in valuation. This is would likely cause a problem for startups that have a larger portion of equity in the hands of investors — like some of those funded by Crowdcube. If the shares that make up this equity are included on the secondary platform, and the value of those shares dip, it could lower the overall valuation of the startup. This might make future financing rounds more difficult.

The need to protect inexperienced investors. Private businesses don't legally have to report financials or other performance metrics — and when they do, the numbers are not always validated by a third party. This makes it especially hard for inexperienced investors to fully understand the risks of investing and could result in significant personal losses — which would likely catch regulators' attention. In this scenario, Crowdcube would have to convince regulators that the investors were adequately educated. This could result in Crowdcube having to bring in an independant third party to audit company reports.

We’ve entered the most profound era of change for financial services companies since the 1970s brought us index mutual funds, discount brokers and ATMs.

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Traditional Retail Banks vs. Online-Only Banks: Traditional retail banks provide a valuable service, but online-only banks can offer many of the same services with higher rates and lower fees

Traditional Lenders vs. Peer-to-Peer Marketplaces : P2P lending marketplaces are growing much faster than traditional lenders—only time will tell if the banks strategy of creating their own small loan networks will be successful

Traditional Asset Managers vs. Robo-Advisors : Robo-advisors like Betterment offer lower fees, lower minimums and solid returns to investors, but the much larger traditional asset managers are creating their own robo-products while providing the kind of handholding that high net worth clients are willing to pay handsomely for.

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Blockchain Transactions

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Explains the main growth drivers of the exploding fintech ecosystem.

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