Investment Partners

Equity and Debt Crowdfunding with Crowd for Angels

Crowd for Angels
Lily Bridgwood
Written by Lily Bridgwood

About Crowd for Angels


Crowd for Angels is a regulated crowdfunding platform that seeks to match investors (our angels) with listed and private companies which are looking for funds. Our name ‘Crowd for Angels’ mirrors our vision.

The Crowd for Angels platform was launched in July 2014 with the aim of creating a disruptive source of financial intermediation that competed with the traditional sources of funding for companies. Via equity and debt issues we help to support companies through all stages of their lifecycle, from seed, developing, pre-IPO and when listed.

Debt Crowdfunding


What is Debt Crowdfunding?

While the crowdfunding industry is probably better known for its equity products, there is a rapidly growing and attractive sub-sector developing for debt based crowdfunded securities. According to innovation charity Nesta a total of £6.2 million was raised via debt based securities in 2015. This was up by 47.6% on the previous year, as investors became increasingly attracted to their benefits.

Crowdfunded Debt Securities

Crowdfunded debt securities are funded in the same way as other crowdfunding products – a large number of investors come together via a crowdfunding platform and collectively raise the money for companies (as opposed to individuals) looking for loans. They are similar to products offered by the larger peer-to-peer (P2P) based business lending market but are instead run by crowdfunding platforms.

The loans are issued for a fixed period of time and also carry a fixed rate of interest which is paid by the borrower to the lenders at set intervals. Crowdfunding platforms which offer debt-based securities are required to be regulated by the Financial Conduct Authority (FCA) and to carry out strict due diligence procedures on their offerings to ensure investors are protected.

Why get involved?


  • Attractive Returns: The rates of interest offered on crowdfunded debt securities typically range from 6% to 12%, dependent on the risk associated with the business. These provide the opportunity to make a higher return compared to deposit accounts and longer-term bonds currently offered by high street banks. Of course, as with any investment, the returns are higher due to the risks being higher – see below for more details.
  •  Steady Streams of Income: Crowdfunded debt securities are designed to pay either interest or both interest and a portion of the principal back to investors at regular intervals, thus providing a consistent flow of earnings.
  • Upcoming Tax Advantages:  The recently launched Innovative Finance ISA (or IF-ISA) enables investors to put certain “alternative” investments worth up to £15,240 within a tax free wrapper. While debt securities are not yet eligible for the IF-ISA, they are expected to be by Autumn this year.
  • Be aware that tax rules can change, are subject to individual circumstances and that you should obtain independent tax advice if you are unsure about your tax treatment.

  • Invest Small Amounts
  • You can invest as little as £25 into crowdfunded debt securities, making them accessible to all types of investor.

  • Diversification
  • Given their risk profile, crowdfunded debt securities can be considered to be a separate asset class, helping investors to spread their investments and diversify their portfolios.

     

    Risks: 

    Investing in early stage businesses runs the risk of losing some of or all of your invested capital if the company defaults on the loan. You should only invest money you can afford to lose.

    Risks are higher if you lend to only one business so investing in crowdfunded debt securities should only be done as part of a diversified portfolio.

    On capital repayment loans the interest rate stated represents the gross return earned if you immediately re-invest all repayments (interest and principal) received over the course of a year at the same level of interest. Therefore, these loans run the risk that you will not be able to reinvest your income at the same interest rate.

    There is not currently a liquid secondary market for the sale of crowdfunded debt securities. As you will not be able to access all of your capital during the duration of the loan it should` be considered as a long-term investment.

    Any losses from crowdfunded debt securities are not covered by the Financial Services Compensation Scheme.

    Given the high risks involved investors need to understand that they should research investment pitches and be happy with the level of risk to which they are being exposed to.

    Equity Crowdfunding


    What is Equity Crowdfunding?

    Equity crowdfunding works in a similar way to traditional equity fundraising, whereby new shares in a company are issued to investors in exchange for funds. However, equity crowdfunding sees the funds raised from a large group of investors rather than a few, as typically seen in traditional equity fundraising.

    The industry facilitates the coming together of innovative but capital hungry entrepreneurs with investors who are willing to take on increased risk in order to potentially make huge returns. Previously only open to wealthy business angels and venture capitalists, equity crowdfunding has helped to open up the market to a whole new pool of potential investors.

    Although the current market for equity based crowdfunding is small it is growing quickly. According to innovation charity Nesta an estimated £84 million was raised via equity crowdfunding in the UK in 2014, up by 200% from £28 million in 2013 and just £3.9 million in 2012.

    Why Get Involved?


    1. Higher Returns with Crowd for Angels 

    Few other financial instruments over the potential to increase wealth as much as equity in an early stage or start-up business does. The right company, if successful, could multiply an initial investment many times over.

    Although it is relatively early days for the industry we can get an idea of the kind of returns which are possible from equity crowdfunding. In 2013 electric car sharing venture E-Car Club raised £100,000 via a seed capital equity crowdfunding round. In June 2015 the company was then sold to car hire business Europcar. While the exact purchase price was confidential, the 63 investors who got in at the seed round are believed to have made a return of around 3 times their initial investment. In other words, returns of 200% have seen to be possible from equity crowdfunding within just two years.

    2. Tax Advantages with Crowd for Angels

    Dependent on individual circumstances UK tax paying investors can enjoy tax benefits from certain crowdfunding investments. Pitches may be eligible for the Seed Enterprise Investment Scheme (SEIS) or Enterprise Investment Scheme (EIS), under which investors can claim back a respective 50% and 30% of their investment in income tax relief. Be aware that tax rules can change and that a number of criteria must be met before relief can be claimed.

    3. Diversification with Crowd for Angels

    Given their risk profile, equity in start-up firms can be considered to be a separate asset class, thus helping investors to spread their investments and diversify their portfolios.

    4. Perks with Crowd for Angels

    Many companies o er rewards and additional “perks” as part of their pitch. These typically include free products, discounts, vouchers and many other company specific benefits.

     

    Please visit Crowd for Angels for more information about their investment opportunities. Your Capital is At Risk. 

About the author

Lily Bridgwood

Lily Bridgwood

Lily is the Partnerships Associate at OFF3R. She has previous work experience in both the corporate and start-up environments. She joined the OFF3R team in October having recently graduated with First-Class Honours in International Business from the University of Edinburgh.

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