Britain’s biggest crowdfunding platform just joined forces with an old-school City of London stockbroker to shake-up the way companies list on the stock market.
Crowdcube has snagged a £6 million investment from Numis Securities and is working with the company to develop the world’s first crowdfunded IPO.
American venture capitalist Tim Draper, London-fund Draper Espirit, and existing investor Balderton Capital also took part in the round.
Crowdcube’s CEO Darren Westlake explained the startup’s IPO ambitions to Business Insider on a call Thursday. He says: “Essentially we see a bit of a gap in the market to offer IPOs to retail investors.”
“IPOs are obviously public offerings but if you look at what’s happened over the last couple of decades it’s been less and less possible for ordinary people to participate, as the majority of the listing have been filled out by institutions. The reason for that is because whoever’s running the book, it’s very difficult for them to deal with thousands of people rather than just one institution.”
In short, it’s easier for stockbrokers to sell big chunks of shares to fund managers and pension funds than run around offloading thousands of small bundles of stock to ordinary people.
And for investors, there’s no easy way to buy into IPOs. Currently, they have to monitor regulatory news filings to spot a company that’s going public and then contact the stock brokers that are in charge of the float. In some cases IPOs are also institutional investors only.
Westlake thinks Crowdcube can fix this market inefficiency. He says: “Platforms like ours have been set up to deal with thousands of investors — that’s where our strength is. If you put those two things together, it allows companies to get access to the crowdcube investor base in a cost-efficient and effective way.”
‘Old guard City players are taking this very seriously now’
Once the IPO tool is built, Numis will pitch Crowdcube to businesses that are going public as an additional way to raise cash, alongside institutions.
Westlake says: “They [Numis] were already thinking about how crowdfunding was going to affect their business and how they should react to that. They expressed an interest quite early on in investing in us.”
Numis is a thoroughly old school City of London stockbroker, tracing its roots back to 1989 and the founding of Hemsley & Co Securities. The fact that such a traditional City firm is joining forces with a young upstart is a big deal.
Westlake says: “It’s really interesting to see how the old school, old guard City players are actually taking this very seriously now. It’s great to see somebody like Numis be so forward thinking. For us, this round is about getting a strategic investor on board.”
Numis’ CEO and founder Oliver Hemsley says in an emailed statement sent out today: “We are very excited to be part of an innovative fintech solution to help the public markets evolve and connect retail investors directly with fast growing businesses.”
‘There’s a lot of work to be done’
Adding IPOs to Crowdcube’s suite of products is the next logical step. Crowdcube currently lets companies raise money from ordinary people by either selling debt or shares in the business via Crowdcube’s online platform.
This form of investing and fundraising has boomed in recent years, and Crowdcube has raised £97 million for companies since starting out in 2011.
It is particularly popular with consumer-facing companies with a brand — craft beer maker Camden Town Brewery has raised money on the site, as has parking space marketplace Just Park.
But the shares and bonds Crowdcube sells are illiquid — there’s no central exchange where investors can go to if they want to sell shares and cash out. If Crowdcube investors take part in an IPO of a company listing on AIM, London’s stock market for growing companies, that problem is fixed.
Westlake says: “Ultimately the goal would be that people would be able to manage their portfolio through the Crowdcube website but that might not be phase one. There’s a lot of work to be done to put that into place, not only from our side on technology but also on the regulatory angel.”
Westlake expects Crowdcube’s first IPO will happen within the next year. He says: “If you look at some of the big IPOs that have happened over the last few years, it would be the Just Eats, that kind of company.”
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