The Exchanges

Q million sweet spot. And as you get to the higher end there, we're seeing obviously more and more money raised on platforms like CrowdBank. Uh, and many have suggested that this has the potential to replace kind of the more traditional VC funding. What are your thoughts on this as we grow the crowdfunding platform to raise more and more money for companies? Do you think these systems are competing?

A Um, in, in short, I don't think they are. I think, uh, look, the ecosystem is evolving, and actually there is room and requirement for both types. Um, VCs have been around for ages, and, and VCs are sort of classes, you know, a capital pool with discretionary decision-making to invest in companies. I think they have a very, very important role, and they will remain, remain there. I think what, what I think will happen, and there's early evidence of that, that they will start to work together, um, Uh, in collaboration, uh, because I think it's very clear, uh, from our experience in the marketplace that investors like, uh, institutional, uh, investor to be involved in the same round. And if you flip the, on the other side, um, sometimes, uh, even a VC might actually benefit from diversifying the investor base. A typical example is we just finished raising money for Gojimo, which, uh, had index ventures as their principal investors, um, In the earlier round, and part of their next partners, uh, followed on in the round that we did.

AI assessment note: “in, in short, I don't think they are.”

Q Sure, and let's talk then a little more specifically about, about you and CrowdBank. So, for those of our listeners who maybe aren't aware, can you give us a bit of background on CrowdBank, how you work, what type of companies you raise for, and say, what's the minimum investment?

A Sure. So, um, at CrowdBank, we basically, um, Look to raise growth capital, uh, for businesses through equity and debt. Um, and our core focus is we actively go and do diligence the company. We structure the deal. We price it. Um, so that's valuation and coupon rates. And we invest alongside the investors who might be investing on those deals, uh, on our platform. And our philosophy is pretty much that, um, we need to have skin the game to be able to stand behind, uh, the structure and the pricing before we take it out to investors. And that's kind of our approach, which is slightly different from a just a pure marketplace, which is a lot of the operators are in. In terms of minimum and maximum, um, I can tell you looking forward what's, um, what's our focus. I think for equity investments, you know, we, we, we are looking at half a million to about three million pounds. That's sort of the range, even though our sweet spot is just about a million pounds. And for debt, uh, whether it It'd be asset backed or unsecured. You're looking at a range between sort of a million to five million. That's sort of the range. Obviously we do, we have done more and we have done less, but that's more or less, um, the, the, the deals we focus on. From an investor perspective, uh, there isn't actually a sort of, um, technical, um, minimum requirements. I mean, it could be as low as 10 pounds, but …

AI assessment note: “there isn't actually a sort of, um, technical, um, minimum requirements.”

Q Sure, and let's talk then a little more specifically about, about you and CrowdBank. So, for those of our listeners who maybe aren't aware, can you give us a bit of background on CrowdBank, how you work, what type of companies you raise for, and say, what's the minimum investment?

A Sure. So, um, at CrowdBank, we basically, um, Look to raise growth capital, uh, for businesses through equity and debt. Um, and our core focus is we actively go and do diligence the company. We structure the deal. We price it. Um, so that's valuation and coupon rates. And we invest alongside the investors who might be investing on those deals, uh, on our platform. And our philosophy is pretty much that, um, we need to have skin the game to be able to stand behind, uh, the structure and the pricing before we take it out to investors. And that's kind of our approach, which is slightly different from a just a pure marketplace, which is a lot of the operators are in. In terms of minimum and maximum, um, I can tell you looking forward what's, um, what's our focus. I think for equity investments, you know, we, we, we are looking at half a million to about three million pounds. That's sort of the range, even though our sweet spot is just about a million pounds. And for debt, uh, whether it It'd be asset backed or unsecured. You're looking at a range between sort of a million to five million. That's sort of the range. Obviously we do, we have done more and we have done less, but that's more or less, um, the, the, the deals we focus on. From an investor perspective, uh, there isn't actually a sort of, um, technical, um, minimum requirements. I mean, it could be as low as 10 pounds, but …

AI assessment note: “Look to raise growth capital, uh, for businesses through equity and debt.”

Q And we mentioned that, obviously, the rise of crowdfunding, uh, in recent years, in particular, it's become a global phenomenon, really. So, what would you say the key drivers are of, of the rise of crowdfunding in this sector as a whole?

A I think, uh, my, my personal opinion on this is, if you look Look at all other industries. Um, you've seen technology come into those industries and, and, and change the way the whole ecosystem works, and whether that is, um, you know, Amazon when it started with books or, um, bidding with, um, eBay and payments with PayPal, uh, but in financial services, per se, bar the ATMs that were innovated sort of mid-nineties, mid-eighties, I believe, Um, nothing really has happened, so all the financial engineering that went on was, was product engineering rather than leveraging technology to actually improve the service. Crowdfunding and alternative finance in general is the first wave of changes that you're seeing where technology is being brought to bear on these, on these, um, systems, and the benefit is actually going down to the To the marketplace, to, to the investors, to the businesses. So I think, um, given the fact that there, there is technology that would make transactions a lot more efficient, transparent, quick, uh, uh, it was, it was a matter of time before something like this happened, and I think, uh, this is, uh, this is perfect. And I think the economic crisis in 2008, perhaps, uh, pushed it along a little bit when, uh, Traditional credit, uh, was sort of squeezed out, but, um, this would have happened regardless of, uh, the 2008 crisis or not.

AI assessment note: “I think the economic crisis in 2008, perhaps, uh, pushed it along a little bit”

Q And how do you approach valuations then? I mean, it's a much talked about topic, uh, and there's been quite a lot of controversy and discussion amongst, uh, some crowdfunding platforms, uh, regarding valuations. So how do you approach it at crowdbank?

A So valuation is a, is a very interesting, interesting one. So I, I did a, I did a valuation, uh, course at NYU taught by Ashwat Damodaran, and he's, he's for, for a lot of people considered the guru of valuation, and I always like to borrow the way he thinks. So he kind of sees valuation in two types. One is intrinsic valuation, which is, which is you're trying to, uh, create value and therefore, um, uh, that value, even the multiple distribution cashflow modeling, um, You come up with a valuation, um, and you're discounted for time and risk, and you get up with a number. And the other one is sort of momentum-based valuation, which is, um, and don't get me wrong, this happens in the stock market as well as private markets, so just so you know. And there, um, you know, the price is what somebody's willing to pay for it. Um, our approach at CrowdBank is we, we go after intrinsic valuation. Because even though it's actually quite difficult sometimes for early stage companies, you may not have all the data at your disposal to be, to be able to come up with something very accurate. But, but our view is that given these are early stage companies, it's actually crucial that the investment happens at a sustainable value such that investors can make money. And what I mean by that is if, if, Even if a company were to be hugely successful, if at the stage we are getting involved in, the v…

AI assessment note: “our approach at CrowdBank is we, we go after intrinsic valuation.”

Q And then, war chest or planned capital injections for startups? Which, which side do you fall on? Should you raise a lot more if you can?

A I've been asked this question a fair few times, and I don't think there's a zero or one answer. I think it really depends what you're doing, uh, as to what your, um, route should be, uh, and what the market's doing. So, you know, if, if you are trying to compete with Uber without a war chest, you're wasting people's money and your own time. Uh, however, if you are, so, you know, If I summarize that, it's a technology-enabled consumer-facing services. I think more and more people are going down the war chest route, and if you want to play in that space, you kind of need to have that or access to it. Whereas if you're in a market where there, it's always going to be a multiplayer market, and you, you have a very key planned stages by which you can get better valuations, then one might Say that, uh, you know, you're better off doing that because you'll dilute less. But, you know, traversing the entrepreneurial journey at CrowdBank, I would kind of say that, you know, raise as much money as you can.

AI assessment note: “I would kind of say that, you know, raise as much money as you can.”

Q And we mentioned that, obviously, the rise of crowdfunding, uh, in recent years, in particular, it's become a global phenomenon, really. So, what would you say the key drivers are of, of the rise of crowdfunding in this sector as a whole?

A I think, uh, my, my personal opinion on this is, if you look Look at all other industries. Um, you've seen technology come into those industries and, and, and change the way the whole ecosystem works, and whether that is, um, you know, Amazon when it started with books or, um, bidding with, um, eBay and payments with PayPal, uh, but in financial services, per se, bar the ATMs that were innovated sort of mid-nineties, mid-eighties, I believe, Um, nothing really has happened, so all the financial engineering that went on was, was product engineering rather than leveraging technology to actually improve the service. Crowdfunding and alternative finance in general is the first wave of changes that you're seeing where technology is being brought to bear on these, on these, um, systems, and the benefit is actually going down to the To the marketplace, to, to the investors, to the businesses. So I think, um, given the fact that there, there is technology that would make transactions a lot more efficient, transparent, quick, uh, uh, it was, it was a matter of time before something like this happened, and I think, uh, this is, uh, this is perfect. And I think the economic crisis in 2008, perhaps, uh, pushed it along a little bit when, uh, Traditional credit, uh, was sort of squeezed out, but, um, this would have happened regardless of, uh, the 2008 crisis or not.

AI assessment note: “Crowdfunding and alternative finance in general is the first wave of changes that you're seeing”

Q And how do you approach valuations then? I mean, it's a much talked about topic, uh, and there's been quite a lot of controversy and discussion amongst, uh, some crowdfunding platforms, uh, regarding valuations. So how do you approach it at crowdbank?

A So valuation is a, is a very interesting, interesting one. So I, I did a, I did a valuation, uh, course at NYU taught by Ashwat Damodaran, and he's, he's for, for a lot of people considered the guru of valuation, and I always like to borrow the way he thinks. So he kind of sees valuation in two types. One is intrinsic valuation, which is, which is you're trying to, uh, create value and therefore, um, uh, that value, even the multiple distribution cashflow modeling, um, You come up with a valuation, um, and you're discounted for time and risk, and you get up with a number. And the other one is sort of momentum-based valuation, which is, um, and don't get me wrong, this happens in the stock market as well as private markets, so just so you know. And there, um, you know, the price is what somebody's willing to pay for it. Um, our approach at CrowdBank is we, we go after intrinsic valuation. Because even though it's actually quite difficult sometimes for early stage companies, you may not have all the data at your disposal to be, to be able to come up with something very accurate. But, but our view is that given these are early stage companies, it's actually crucial that the investment happens at a sustainable value such that investors can make money. And what I mean by that is if, if, Even if a company were to be hugely successful, if at the stage we are getting involved in, the v…

AI assessment note: “our approach at CrowdBank is we, we go after intrinsic valuation.”

Q So then how do you think the implementation of the SEC's new Jobs Act will, will affect the, the overall crowdfunding environment?

A I think, I think it's a, it's a very positive step, not so much because of what the Act actually is, because I think it's been greatly diluted from the original principles of when it was proposed. But what it sort of signals to the market about the fact that the alternative finance industry and crowdfunding is here to stay and is going to become mainstream. Um, if, if you look at the crowdfunding, uh, sort of, uh, growth across the world, and I think you'll find UK is actually leading the market in that, uh, way before SEC. We've been around and, uh, growing tremendously, um, in, in the last three years. And their F CA, uh, has been, uh, quite proactive in actually having a conversation to allow that innovation to happen. Uh, but, uh, you know, um, America is, is, is huge in terms of the amount of, um, capital it represents and the amount of, uh, businesses that come out of it, so the, the SEC ruling will definitely help, but, um, I think, um, um, UK has already, um, shown that it can Beat America in this instance, not that it's a competition or anything, but, uh, uh, and I think, uh, that, that will carry on happening, because I think we, we, we are truly innovators in this space.

AI assessment note: “I think it's a very positive step... what it sort of signals to the market”

Q And what would you say then are the greatest barriers to the, to mass market adoption? We said about the rise earlier, and it has risen phenomenally, but I wouldn't say it's, you know, fully adopted by the mass market. Uh, so what do you think are the barriers to this happening, and what challenges do you think, you know, you face in the industry?

A So I, I absolutely agree. I think, I think this is a very, very, uh, nascent, uh, industry, and, and just thinking about the numbers. In the UK, the debt market is one hundred and sixty eight billion pounds. Uh, so, so you, you can see the entire of crowdfunding in the UK, uh, is, is, is less than ten billion, I mean, depending on whose numbers you go by, but, but it has grown, and it has all the potential of becoming, uh, mainstream, uh, but it's, it's very small compared to, um, the size of the financial services. Um, I think, Challenges. I think awareness is one. Awareness, what I mean by that is, you know, disrupting the, uh, traditional incumbents in terms of financial services. What I mean by that is big funds, banks, and even, uh, to some extent, some VCs who do not want to collaborate. I think the numbers are far bigger, and they have a lot more muscle and firepower to actually, um, You know, gain share of mind. Whereas crowdfunding platforms in general, and that is changing as they are getting capitalized themselves, don't have that sort of a budget, um, to, to actually compete for, uh, uh, you know, the retail mind share, which, uh, unfortunately a lot, not a lot of people actually read Financial Times. They're, they're, they're rather mainstream. So that's, that's one of the things, awareness. And the second one is, I would say regulation. We've been very lucky in th…

AI assessment note: “Challenges. I think awareness is one... And the second one is, I would say regulation.”

Q And how do you think then that the CrowdBank Funding environments differ between the US and the UK. Obviously Kickstarter is a massively different, um, method of investing with the gift pledging instead of the equity returns that crowd bank offer. But how do you compare the two environments?

A I think, um, there's three elements, um, to that question, if I may. So I think one is, look, Kickstarter made, um, the concept, uh, popular, and obviously crowdfunding is quite a wide word, and there's very many, many types of it. Whether it's Kickstarter, where you do pledging, whether it's, um, regulated crowdfunding, which is where CrowdBank is in, or whether it's been a philanthropic capital, like Kiva, they've been going for, for, Quite a, quite some time. Very successful. So, um, so it really, it really depends, um, which part, um, of the crowdfunding, uh, sector you, you're sort of looking at. But, uh, generally, um, it's, it's not a, not a secret that U.S. venture capital and sort of early stage, uh, investing is a lot more popular than, than in the U.K. and Europe. Um, as a result, um, whilst crowdfunding and sort of, uh, regulated-based crowdfunding Which you might have seen, the SEC has just finally approved the final piece of that, of the Jobs Act.

AI assessment note: “U.S. venture capital and sort of early stage, uh, investing is a lot more popular”

Q So then how do you think the implementation of the SEC's new Jobs Act will, will affect the, the overall crowdfunding environment?

A I think, I think it's a, it's a very positive step, not so much because of what the Act actually is, because I think it's been greatly diluted from the original principles of when it was proposed. But what it sort of signals to the market about the fact that the alternative finance industry and crowdfunding is here to stay and is going to become mainstream. Um, if, if you look at the crowdfunding, uh, sort of, uh, growth across the world, and I think you'll find UK is actually leading the market in that, uh, way before SEC. We've been around and, uh, growing tremendously, um, in, in the last three years. And their F CA, uh, has been, uh, quite proactive in actually having a conversation to allow that innovation to happen. Uh, but, uh, you know, um, America is, is, is huge in terms of the amount of, um, capital it represents and the amount of, uh, businesses that come out of it, so the, the SEC ruling will definitely help, but, um, I think, um, um, UK has already, um, shown that it can Beat America in this instance, not that it's a competition or anything, but, uh, uh, and I think, uh, that, that will carry on happening, because I think we, we, we are truly innovators in this space.

AI assessment note: “signals to the market about the fact that the alternative finance industry and crowdfunding”

Q And how do you think then that the CrowdBank Funding environments differ between the US and the UK. Obviously Kickstarter is a massively different, um, method of investing with the gift pledging instead of the equity returns that crowd bank offer. But how do you compare the two environments?

A I think, um, there's three elements, um, to that question, if I may. So I think one is, look, Kickstarter made, um, the concept, uh, popular, and obviously crowdfunding is quite a wide word, and there's very many, many types of it. Whether it's Kickstarter, where you do pledging, whether it's, um, regulated crowdfunding, which is where CrowdBank is in, or whether it's been a philanthropic capital, like Kiva, they've been going for, for, Quite a, quite some time. Very successful. So, um, so it really, it really depends, um, which part, um, of the crowdfunding, uh, sector you, you're sort of looking at. But, uh, generally, um, it's, it's not a, not a secret that U.S. venture capital and sort of early stage, uh, investing is a lot more popular than, than in the U.K. and Europe. Um, as a result, um, whilst crowdfunding and sort of, uh, regulated-based crowdfunding Which you might have seen, the SEC has just finally approved the final piece of that, of the Jobs Act.

AI assessment note: “U.S. venture capital and sort of early stage, uh, investing is a lot more popular”