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Equity crowdfunding is like DIY venture capitalism for the small investor. Individuals put their money into very early-stage businesses, many of which will qualify for Enterprise Investment Scheme (EIS) or Seed EIS (SEIS) tax relief. The UK's first equity crowdfunding platform, Crowdcube, was established in 2011; Seedrs in 2012; and SyndicateRoom in 2013. Most of these platforms are of a general nature anyone with a bright idea can put together a pitch and put it in front of investors. Head to any of the three platforms mentioned above, for example, and you'll see a wide range of businesses touting for cash: brewers, apps, artisanal bakers and biotech companies galore. But a growing number of new platforms cater to just one strand of business. One such platform is Capital Cell.
Why specialise?
Capital Cell focuses exclusively on life-sciences businesses biotech, medical-device makers, therapeutics and diagnostics, and the like. Why? If you were investing in property, argues founder and chief executive Daniel Oliver, you would probably want to go to a specialist real-estate platform. As far as he's concerned, "it's the same with biotech". Capital Cell has "biologists at its core", says Oliver, who have "huge experience" in the industry. As a result, he says, the platform has the ability to work out whether a product has any hope of success or not. "We pass projects through a series of filters that include experts in pretty much every relevant field: patents, regulatory, strategy, scientific, etc, so all the companies we put on the website are good opportunities with a decent chance."
Capital Cell began life in Barcelona in 2015 and expanded to the UK last year. Its Spanish operation boasts more than 3,000 investors who have participated in 23 successful fundraisings, with an average value of €500,000 and a maximum of over €1.2m. This year will see between ten and 14 rounds, raising around €10m.
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In the UK meanwhile, investors have backed a company developing a smart biometric sensor; one developing therapies for inflammation and autoimmune diseases; and one developing robotic devices for keyhole surgery. Each company takes two to three months to bring on board. "We don't shove tons of companies onto the platform," says Oliver; just ten or 12 a year, with two or three on the go at once. "We lay very, very few eggs."
Beware: it is hugely risky
It should almost go without saying that this type of speculative investment is extraordinarily risky: the number of successful exits for early-stage businesses funded by crowdfunding remains very low. Oliver claims one company has made a "partial exit" from the Spanish platform: a company developing a cancer diagnosis tool offered anyone who wanted to exit twice their money, 24 months after the first round. Another five have received further venture-capital funding.
But no matter how carefully you vet your projects, these sorts of early-stage firms often fail, and biotech is a particularly risky sector. Oliver notes that no firm featured on the platform has gone bust yet, which is unusual for companies at this stage. But bear in mind that the platform has only been in existence for three years. And be aware, too, that back in 2016 the financial watchdog, the Financial Conduct Authority, warned that equity crowdfunding is "a high-risk activity" in which "it is very likely that you will lose all your money". Little has changed since then.
News bytes... Facebook plans its own cryptocurrency
Facebook is considering creating its own cryptocurrency, reports Alex Heath for online financial news broadcaster Cheddar. The social network has appointed David Marcus, a "huge" crypto-enthusiast, former president of PayPal, and member of the board of cryptocurrency exchange Coinbase, to head a new group dedicated to blockchain. The technology could be used for ID verification, data encryption and back-end infrastructure purposes. But Facebook is particularly interested in cryptocurrencies, says Heath. Creating a global payments and digital-wallet infrastructure that would enable its two-billion-plus users around the world to make cross-border payments without using fiat currency could have huge potential for the group.
Traditional banks are fighting back against digital challengers. Santander now plans to create a standalone digital bank, says Iain Withers in The Daily Telegraph. This will focus on services for small businesses, including advice on payroll and pensions. Santander also intends to bring its Openbank digital bank to the UK, reports Finextra. Openbank was launched as a telephone banking subsidiary in Spain and was relaunched as a 100% digital bank last June. It has set a target of recruiting 30 million digital customers by the end of 2018. HSBC, meanwhile, has launched its Connected Money app for the iPhone (Android users will have to wait a little longer). The app allows customers to manage accounts from 21 different providers, including those from HSBC's main rivals. It racked up 13,000 downloads within 24 hours of being launched.
Freetrade, a smartphone app that promises to "democratise investing" by offering zero-cost stock trading, is raising money on equity crowdfunding site Crowdcube. It hopes to raise more than £1m to enable it to create an Android version of its app, build up its customer service team and expand into the EU. Initially offering UK shares and exchange-traded funds (ETFs), it hopes to bring US shares plus fractional-share investing to the platform in the future, all tradable with no commission. Freetrade boasts a waiting list of 34,000 customers. A beta version of the app is in Apple's App Store now, with live trading "just around the corner".
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Ben studied modern languages at London University's Queen Mary College. After dabbling unhappily in local government finance for a while, he went to work for The Scotsman newspaper in Edinburgh. The launch of the paper's website, scotsman.com, in the early years of the dotcom craze, saw Ben move online to manage the Business and Motors channels before becoming deputy editor with responsibility for all aspects of online production for The Scotsman, Scotland on Sunday and the Edinburgh Evening News websites, along with the papers' Edinburgh Festivals website.
Ben joined MoneyWeek as website editor in 2008, just as the Great Financial Crisis was brewing. He has written extensively for the website and magazine, with a particular emphasis on alternative finance and fintech, including blockchain and bitcoin.
As an early adopter of bitcoin, Ben bought when the price was under $200, but went on to spend it all on foolish fripperies.
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