Interest growing in alternative finance
Scotland slowly adopting crowdfunding model
Scottish businesses raised more than £27 million from crowdfunding last year, though this represents just 4% of the UK total.
‘The Scottish Crowdfunding Report 2016’, commissioned by Glasgow Chamber of Commerce with law firm Harper Macleod, LendingCrowd and Santander, shows1,263 successful campaigns with the largest raising £1.2m for accounting software company, FreeAgent.
Activity in Scotland accounts for 4% of the overall UK total but has risen significantly since 2013 whenless than £1m was raised, only 1% of the UK total.
Crowdlending, or P2P marketplace, has taken the lion’s share, contributing £20,529,000 in value usually financing expansion and growth.
Around 32% of Scotland’s total activity took place within this model through 410 loans. The average value of a loan was £50,000 with a typical interest rate of 10% spread over 47 months.
The largest sector to benefit from the lending model is manufacturing and engineering (£4.036m over 55 loans) followed by property and construction (£2.743m spread across 62 loans).
The most popular form of fundraising is reward-based campaigns where ‘perks’ are offered to backers in return for contributions. There were 842 successful campaigns raising £2,586,594. Community projects were the most popular (242) followed by film (115) and notably, politics (106) which ranked third as compared to 15th if making a UK-wide comparison.
Reward campaigns in Scotland have a 31.1% success-rate with some falling short of their desired targets depending on whether the criteria is ‘flexible’ or ‘non-flexible’ – when failure to reach target means the project owner doesn’t receive anything. Overall, there were 1,317 projects, including unsuccessful, non-flexible drives, with an average pledge of £51.
Equity crowdfunding tallied £3,948,777 from 11 campaigns, compared to no similar initiatives in 2013. The deals fell into four broad categories: business services, food & drink, healthcare and technology. FreeAgent was the most lucrative while LetPal was the smallest successful push, collecting £70,000 on SquareKnot (now Growthdeck).
Stuart Patrick, chief executive of Glasgow Chamber of Commerce said: “This detailed report clearly illustrates the popularity and awareness of crowdfunding within Scotland has considerably increased since 2013.
“The country has expanded every aspect of its activity, shown by values collected, the diversity of projects, number of platforms and overall visibility.
“This is extremely positive and reflects the entrepreneurial ambition which exists amongst businesses of all sizes.
“Progress since 2013 helps to address concerns identified by our previous report and when comparisons are made to the rest of the UK, Scotland’s expansion has been extremely rapid – albeit from a low starting base.
“To sustain this momentum it is important to keep promoting awareness of crowdfunding’s potential as a viable source of finance to the business community.“
The report was produced by twintangables utilising an extensive range of methodology including interviews, data collection and analysis, survey based content and focus groups. It covers the period of October 2014 – September 2015.
Steve Hand, Santander Corporate & Commercial Banking’s Regional Business Development Director, said: “The emergence of crowdfunding in recent years provides another source of funding for ambitious entrepreneurs to consider – whilst building early advocacy for new business products or services.”
Paula Skinner (pictured above), partner at Harper Macleod, said: “This report is a real milestone for the crowdfunding sector in Scotland.
“The level of enquiries we’ve had from businesses interested in crowdfunding has skyrocketed since 2013, but it’s only by getting a comprehensive view of the scene that you can really appreciate the growth of the past few years.
“Those who have championed crowdfunding in Scotland, myself included, have been acutely aware that we have been playing catch-up on the rest of the UK.
“The report shows that we are rapidly getting there, with remarkable success rates for campaigns, and there is still capacity for growth. I expect this trend to continue, helped considerably by the establishment of crowdlending as a mainstream part of the funding mix for SMEs.”
Stuart Lunn, CEO and co-founder of LendingCrowd, said: “The Scottish crowdfunding ecosystem is beginning to develop critical mass although we believe there is an opportunity to build a much bigger base in Scotland for alternative financing models.
“Leading industry commentators now agree that while peer-to-peer lending is not going to replace the traditional banking system, greater collaboration between the banks and new entrants like ourselves are in the interests of the SMEs that power economies worldwide.
“In Scotland, it’s important that we grasp the opportunity to embrace the inevitable rise of fintech so that we are at the forefront of developments rather than being in the following pack.”
SortmyPC – Lending-based crowdfunding.
Edinburgh-based IT support company, SortmyPC works with over 1000 clients to provide technical advice. Following a merger with another local IT firm, the company needed investment to support its growth. It used Scottish crowdfunding platform, LendingCrowd, taking five weeks to reach its target of £73,000. In total, 25 individual investors placed 55 separate bids for the loan.
Diet Chef- Lending-based crowdfunding.
Diet Chef, run by Kevin Dorren, raised £1.5m in less than six weeks. The company helps people to lose weight by preparing and delivering specialist meals which have controlled portion sizes and calories. The campaign was a method of providing an early return for investors who’d originally helped to kick-start the company, buying back the equity they’d sold. The business turns over £15m per year.
Websters- Reward-based crowdfunding
A theatre based in the West End of Glasgow which was formally in the Lansdowne Parish Church. An A-listed Gothic Revival building was in need of restoration which would save it from decline while transforming the space into a multipurpose building. Money to fund the work was raised through a crowdfunding campaign.
Eight reward categories were offered ranging from £5 to £5000, smashing the original £25,000 target to raise £33,310 in a three-month period.
Find a Player – Equity Based Crowdfunding
Find a Player is a smartphone app that makes it easier for people to find and play sports. It allows users to set up a sporting activity and invite their friends to join straight from their phone. Last year the business raised £150,000 by way of an equity crowdfunding campaign through the Seedrs crowdfunding platform.
Harper Macleod has assisted founder Jim Law in a number of ways since 2014 and advised on the company structure and with the documentation associated with the crowdfund. Find a Player has been described as ‘the next Unicorn’ by Ian Nolan, Head of Sports Globally for Yahoo and is using the crowdfunding investment to continue of development of the app and take it to the next level.
Photos: Paula Skinner (by Terry Murden) Stuart Lunn (contributed)