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UK start-ups turning to crowdfunding for growth

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The use of crowdfunding is on the increase among UK start-ups, according to the study.

UK start-ups are increasingly using equity crowdfunding to grow their businesses rather than conventional sources of funding, according to research by the University of Stirling and the University of St Andrews.

This has been helped by the rapid growth of new internet-based crowdfunding platforms like Crowdcube, Seedrs and the Syndicate Room, which are crowding out banks, venture capitalists and business angels.

The UK has now established itself as the fastest growing equity crowdfunding market in the world, with firms raising £146m in 2015, up front £91m in 2014.

The study showed the key attractions of crowdfunding are the ability to raise funds quickly speed and the lack of 'strings attached'. Firms seeking crowdfunding tended to be very young, small and often pre-revenue, with most operating in consumer-oriented sectors such as digital media, food and drink, and transport.

The study showed that crowdfunding’s benefits were not limited to finance. The process helped entrepreneurs who were seeking validation of their business concept and led to valuable media exposure.

A clear north-south divide in demand for equity crowdfunding was also apparent, with the strongest demand coming from firms in London and the south-east. Scotland only attracts around 4 percent of the UK total for equity crowdfunding, around half the level expected.

Dr Suzanne Mawson, from the University of Stirling’s Management School, said: "By connecting start-ups to new investors, new customers, new markets and new media channels, equity crowdfunding is now a vital mechanism for accelerating the growth of innovative new companies.”

"We know that equity crowdfunding can help to create jobs and to secure assets in the short term, but the real outcomes and benefits of this process will take time to determine."

"A lack of interest in this emerging form of finance suggests that Scottish firms may be missing out on important opportunities to help grow their new ventures. There may be scope for policy makers in Scotland, such as Scottish Enterprise, to consider signposting firms towards this important source of growth finance."

Co-author Dr Ross Brown, from the Centre for Responsible Banking & Finance at the University of St Andrews, said: "For the most part, start-ups no longer see banks as an appropriate source of funding and are increasingly viewed as archaic given the dynamic nature of the modern day start-up economy. By contrast equity crowdfunding is viewed as 'fast money' which helps new ventures to grow rapidly.

"While some organisations have labelled crowdfunding ‘alternative’ finance, our work suggests that ‘disruptive’ finance would be a more appropriate term."

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