Before we look at the future of fundraising, let take a quick look at its history. Amsterdam tries to take credit by founding the first Stock Exchange in 1602, however, the real beginnings go back to circa 1700 BCE. This is when the Code of Hammurabi was hammered out in Mesopotamia forming the basic framework that still governs the rules of investing today.
London caught up with Amsterdam in 1698 with the launch of the LSE; other significant bullet point milestones include the first pension fund in 1759, the Dow Jones index in 1896, the first VC firm in 1946, the introduction of the portfolio theory in the 1950s and the founding of the NASDAQ 100 in 1985.
Digital crowdfunding sites have transformed fundraising in the 21st century and have turned customers, family and friends into investors though this too started much earlier – the true genius is the multitasking Mozart. In 1793 and lacking the cash to perform three new concertos in Vienna, he made an appeal for funds and was rewarded by a ‘crowd’ of 176, each of whom received a copy of the concerto manuscripts as their prize.
However, the one problem – that has existed throughout – is that no matter who invests in you or how you come by your shareholders, you’ve always needed a middleman. By default, these facilitators have controlled the fundraise, from the introductions and presentations to the length of the campaigns. Until now.
2020 technology offers a solution: digital is allowing start-up and scaleups to take back the reins of their rounds, with the ability to fundraise through a fully personalised platform – within an FCA regulated space. This can include an investor relations portal and the freedom to fundraise – if required or desired – all day, every day. For the first time, the entrepreneur is in charge and that changes everything. Following on from this let’s look at four trends that are transforming how we fundraise:
1 ‘Always On’: the death of fixed funding rounds
Traditional fundraising rounds usually last between 30 – 60 days. However, this approach will soon be consigned to history, as the new breed of owned funding platforms enable scaleups to stay open to capital throughout their entire growth cycle, from seed to exit.
All savvy entrepreneurs know that time is key in getting funding: finding the right investor – and vice versa, for the right investor to find the perfect deal – can be a lengthy process and opportunities can easily be missed if you’re facing a strict deadline. Another bonus is that it allows a company to take advantage of any unexpected successes – a significant hiring, a valuable contract, an unexpected piece of publicity… anything that creates a ‘buzz’ is attractive to new investors. Zap&Go provide a perfect example: BBC Click aired a feature about their superfast charging technology giving them some great publicity. Through their funding platform, Envestry for Scaleups, they were able to capitalise on this by extending their funding round by six months. They subsequently raised £500,000.
2 Investor relations: an essential skillset for all CMOs
Investors hate being treated like an ATM. The stories of being wined and dined during the intense windows of raising finance, only to be dropped once the money is in, are myriad. However, if the fundraising mindset is always on, the investor relations (IR) mindset is always on, meaning that your investors are kept warm and ready to invest in your future rounds. In order to maintain this, CMOs will need to be experts in investor relations; digital tools can help with this. By simply having a dedicated system to post regular updates to your shareholders – whether the news is good, bad or atrocious – creates an inclusive sense of community that goes far beyond just driving sales and making money.
In particular, crowdfunded investors may well have given you their money (which can be as low as a pledge of £10) because they strongly identify with your brand and vision – these people are your biggest cheerleaders (think the Brewdog ‘Equity for Punks’ success); if you look after them, they’ll talk about it and this can will benefit everybody. Likewise, when you’re struggling – if you actually tell them about it, they’ll be the first to offer to help.
3 Introducing the multi-market investor
According to statistics released by Beauhurst, in 2017 UK scaleups received £6bn in overseas funding, with 396 deals featuring at least one foreign investor. Trends indicate that this figure will continue to rise, with the biggest increase coming from Indian investors, up 321% from 2016.
Gone are the days of exhausting presentations abroad and pitch video conferencing as the sole means to attract foreign investment: geography-agnostic digital platforms make it easy for entrepreneurs to fundraise beyond their own borders. Not only do they provide a bigger pool of potential backers, they also safeguard against any political or fiscal uncertainty in the UK. Quite simply, diverse investors from a wide range of economies, spreads – and therefore reduces – the risks.
4 Opening up the secondary market
Even in 2019, the investment landscape was still lacking in secondary market opportunities for early stage companies. The primary market – companies selling directly to investors – means that an investor must have sufficient capital to lock their money in a company’s shares for however long it takes for the business to exit – an average of at least six years – before they see any returns.
The secondary market, however, enables a shareholder to sell directly to another private party and although a few companies have started to offer this, it’s a concept that is still very much in its infancy. However, it’s naturally very attractive to investors and digital provides the necessary tools to make it mainstream: a controlled, secure portal of reporting, agreements and accounting will allow stakeholders to communicate with each other, in turn leading to opportunities to buy and sell their shares. We predict that this will soon become the norm.
We believe that digital will dispense with the dominance of the broker and return the reins to the entrepreneur, giving control back where it belongs.
Scott Haughton is COO of Envestors, a fintech company that connects investors and scale-up companies. With its fundraising platform Envestry for Scale-ups, companies get a personalised site to promote deals, raise finance and engage with their investors 24 hours a day, 365 days a year.
Envestry has raised £100m+ for over 200 companies through its own private investor network.
Founded in 2004, Envestors is regulated by the FCA and has offices in the UK, the Channel Islands, the UAE and strategic partners across China.