Crowdfunding is growing up – but with great power comes responsibility

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Sophie Morris | The Independent | Wednesday, June 24th, 2015

Crowdfunding used to be the wild child of finance. Now it’s become a big business, it’s having to knuckle down and face greater scrutiny.

In 2012, Emilie Holmes needed money to kit out her 1970s Citroen H van, and she needed it fast. With grand ideas for the old truck – she wanted to transform it into a travelling tea shop – she signed up as one of Kickstarter’s first UK projects and raised £14,500 in five days, which was 45 per cent more than her target.

“At the time, it felt serendipitous,” she remembers, midway through another round of funding, this time with Crowdcube. “It felt good to bring people together, and ever since, this community has been a really lovely source of support.” She will soon open a bricks-and-mortar version, with another not far behind.

When the concept of crowdfunding emerged in the UK around six years ago (Kickstarter launched its UK site in early 2013), it was seen as more of a philanthropic affair rather than an investment opportunity, often supporting creative projects where there was no expected financial return. Musician Amanda Palmer raised $1.2m (£770,600) in 2012 for an album and tour (controversially, given her existing success). A project on Indiegogo, “Fly Edward Snowden Fly”, asked for $200,000 (£128,500) to help the NSA whistleblower when he was trapped in a Moscow airport in 2013. It raised a few hundred dollars.

These types of projects still exist, and they still thrive with money raised from a wide network of investors, but crowdfunding itself has grown up. It attracts pitches for funds not only from small, existing companies, but also from very large and successful organisations, such as Adzuna, a search engine for jobs which is currently asking for £1.5m on Crowdcube, and is already overfunded with a week to go. JustPark, a website that matches drivers with the owners of spare parking spaces, raised £3.7m in 34 days earlier this year, also with Crowdcube.

Crowdfunding is often described as a “disruptive” force in financing. Bank loans and venture capital-backed funding are typically closed to start-ups or more unusual business ideas, and amateur investors don’t have access to a great number of potential cash cows, so crowdfunding fills this gap.