What are the major sources of scale-up equity finance in the UK?

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BusinessZone |By Christopher Goodfellow | Aug 8, 2017

We’ve worked with Beauhurst to find the top 10 UK providers of equity investment for rounds of between £250,000 and £2m.

Use the below links to skip to a particular investor.

  1. Crowdcube
  2. Seedrs
  3. SyndicateRoom
  4. Scottish Investment Bank
  5. The London Co-Investment Fund
  6. London Business Angels
  7. Mercia Fund
  8. LocalGlobe
  9. Angel Co-Fund
  10. Seedcamp

This tranche of funding is crucial in ensuring startups have the financial support to scale beyond small seed investments, which are now well supported due to tax incentives for investors.

Pedro Madeira, Beauhurst’s head of research, said:

"This bracket covers upper Seed and lower Venture investments that may end up being too large for traditional Angels and too small for VCs. So it is important to ensure there is an adequate supply of investment for companies that require investment within that bracket.

"It is worth noting that the top three investors are all equity crowdfunding platforms. This further confirms the view that this bracket runs the risk of falling in a 'no man's land' between Angel investors and VCs."

If you found this research helpful or can think of a way we can improve the resource leave us a comment below, and we’ll get back to you.

Crowdcube's investments in UK startups

Crowdcube is an equity crowdfunding platform. Beahurst data shows it facilitated 58 deals in the £250,000 to the £2m range last year.

Interviewee: Luke Lang, co-founder and CMO

Notable businesses: Cauli Rice, goHenry, POD Point, Camden Town Brewery, BrewDog

How active are you in providing scale-up finance?

The vast majority of raises fall within this range (although the full Series rounds can go up to £10m if you include bonds and VCs). Crowdcube really dominates the £1m-plus rounds at the moment, with over 40 raises of over £1m completed on Crowdcube in the last 18 months.

What are your criteria and specialism?

Typically, we’re looking at companies raising over £100,000. The mid-tier of between £250,000 and £750,000 is our sweet spot. The average raise last year was around £800,000, but this is slightly skewed by bigger pitches.

We’re open to different sectors, different stages of growth and different types of businesses.

Over what period are you looking to invest?

We have no set criteria on this front.

See:  2017 Canadian Online Funding Directory

What’s the best way to approach you for investment?

We have lots of referrals from brands that have previously raised but of course, you can get in touch with us directly to find out more about raising on Crowdcube. You can also find lots of information and resources, including advice from entrepreneurs that have already gone through the process, on our website.

What share of entrepreneurs who approach you tend to be successful?

Crowdfunding is now a mainstream funding option for many businesses. We’ve seen the number of businesses apply to raise on the platform consistently increase year-on-year and so far over 680 businesses have applied to Crowdcube.

"We invest in around 5-10% of businesses that get onto our list, but angels need to collectively be investing more than £100,000." Angel Co-Fund

Of those that have listed on the platform so far in 2017, 60% have successfully raised finance from our crowd of investors.

How long does it normally take to get an investment?

It takes three-to-four weeks to get live on the site if you’re really on it and it’s a straightforward business with no anomalies. They’re normally funded within another three-to-four weeks. A well-executed campaign should reach 100% of their target within 10 days to two weeks.

Monzo Smashed the previous record raising £1.0m in 96 seconds last year. The previous record was Crowdcube, which raised £1.2m in 14 minutes.

What’s the USP of your offering?

No one has raised more! We’ve had 500 successful raises, worth over £250m.This means no one’s got more data or insights or expertise on how to successfully crowdfund.

Crowdcube works with brands to ensure they maximise all the opportunities that present themselves during the raise, can advise on networking, help secure lead investors and more; this is the secret sauce - team, people, knowledge, know-how!

Seedrs equity crowdfunding in the UK

Seedrs is an equity crowdfunding platform. Beahurst data shows it facilitated 41 deals in the £250,000 to the £2m range last year.

Interviewee: Tom Horbye, senior campaign development associate

Case studies: FreeAgent, Perkbox, Chapel Down, Veeqo

How active are you in providing scale-up finance?

Our average round size last year was about £400,000 and we funded over 159 deals with £85 million invested in 2016 alone.

Seedrs is the most active investor in UK private companies and, since its launch in 2012, has funded over 500 deals with over £230 million invested into campaigns on the platform.

What are your criteria and specialism?

FinTech has historically been very successful on Seedrs, but we wouldn’t necessarily call it our ‘specialism’. We have funded growth-focused businesses from over 15 different verticals from SaaS, PropTech and HealthTech to AI, Robotics and fast moving consumer goods.

Around 80% of deals on Seedrs fall under the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), which is a great incentive for investors looking to build portfolios in the early stage equity asset class as they offer up to 50% tax relief for UK tax payers.

"We receive more than a thousand approaches for investment a year, but only around 4% receive investment." Mercia Fund

However, we welcome companies that are not eligible for these schemes, largely because they’re based in Europe or they’re in a restricted category (a challenger bank for example). Those businesses will still fund successfully, helped by our pan-European investor base.

See also:  Seedrs is an Iceberg Business. The Behind the Scenes Operation is Hugely Important

Over what period are you looking to invest?

Investors should be aware that early-stage equity is a long-term asset class, and investors won’t get quick gains straight away if at all. You are looking at between five-to-seven years before you might see returns.

On paper Seedrs’ portfolio is performing well, with a platform-wide internal rate of return of 14.4% and 49.1% on a tax-adjusted basis. However, in the interim, investors can seek liquidity by selling shares on Seedrs secondary market, which launched in June. In fact, a few investors have realised 19x returns already.

What’s the best way to approach you for investment?

We are very proactive, constantly out at networking events, speaking to exciting businesses. However, we’re always open to direct approaches, although warm approaches via introductions often help. Entrepreneurs can approach us at events - whilst we might be an online platform, we are still human!

We also have a lot of institutional investors introducing us to their portfolio companies who might be doing Series A or B rounds and want to top up from the crowd with co-investment from the VC.

What share of entrepreneurs who approach you tend to be successful?

First of all, we only accept around 10% of the businesses that apply to fund on Seedrs because we have very strict criteria to ensure that companies selected have the best chance to fund successfully, but also to ensure that we are presenting the best possible deals to investors. Our due diligence process is incredibly in-depth, but this is vital to protect our investors.

Once a company has successfully passed the due diligence checks and their campaign goes live on the platform, the real work begins. It isn’t as simple as going live and the money pours in, equity crowdfunding is hard work and relies on very proactive founders with an engaged community behind them. Seedrs investors are in the main sophisticated and have investment portfolios across many asset classes, so they are incredibly selective in which companies they back.

To be successful, it’s important to have a clear idea about why you’re raising - what’s it for? Why are you crowdfunding rather than raising offline? Why is it important? You need to have a clear rationale; 68% of businesses that go live on Seedrs successfully fund and they all share this clear, strong rationale.

How long does it normally take to get an investment?

From submission to funding takes two-and-a-half to three-and-a-half months. We aim to get business investment ready in three-to-four weeks, and those that go on to successfully fund tend to be 90% or fully funded in the first 30 days.

What’s the USP of your offering?

For ambitious growth businesses, we’re the most active equity investor in UK private companies, meaning Seedrs has a unique insight into the needs of early-stage companies. Commonly, the businesses we speak with are focusing on scaling through raising growth capital and marketing their products or services to increase revenues. Equity crowdfunding through Seedrs is a unique way for businesses to combine both of these crucial scale drivers in an efficient online process.

SyndicateRoom

SyndicateRoom is an equity crowdfunding platform. Beahurst data shows SyndicateRoom facilitated 23 deals in the £250,000 to the £2m range last year.

Interviewee: Tom Britton, co-founder

Case studies: MITODYS, Saoty Movie, LerzTech, Axll, Nuine

How active are you in providing scale-up finance?

About 85% of our investments are in that range. We don’t tend to do many SEIS level investments or investments under £250,000 as we can typically find angels to take this because of tax benefits rather than needing the crowd.

So, around 80% of investments on SyndicateRoom are at EIS level, 10% SEIS, and 10% neither. It’s a strong boost to a company if it’s SEIS or EIS eligible, but we do have successful ones that run without it.

What are your criteria and specialism?

Healthcare and life sciences make up about one-third of the businesses we deal with. This is in part unintentional. It’s about their network and who they’re connected too in that space. B2B goods make up about 18%.

It’s highly unlikely we’ll invest at the idea or concept stages. Some form of traction or revenue is required with a realistic growth plan. Making sure financial history and forecasts are in order is really helpful. Similarly having laws in place. There’s a lot of things that companies should be doing anyway!

Over what period are you looking to invest?

Ideally, three-to-five years for them to be bought out, life sciences are 20 years, software seven years. That said, try not to get too caught up on this, it can be a bit of a red flag!

It’s very much about the life span, we will recommend VCs etc. for second rounds. Publically we work with brokers to refer for IPO.

See also:  ‘Crowdfunding is growing up’: SyndicateRoom just partnered with the London Stock Exchange

What’s the best way to approach you for investment?

Personal introductions and recommendations from other companies that are raising is the best route and this probably accounts for 60% of the businesses we work with.

We do get some through the website and scan them all regularly - it’s always good to get fans of the business involved. We try to get back to people within a few days.

What share of entrepreneurs who approach you tend to be successful?

We have a very high success rate - about 80% of businesses hit their target - because of the way people go through screening, we know what investors want and what the capacity is.

How long does it normally take to get an investment?

Businesses will need to engage for about three-four months total from an intro to done and dusted.

It takes about a month to go through the vetting and get onto the platform, providing they’re ready to get to the next stage.

"Ideally, three-to-five years for them to be bought out. That said, try not to get too caught up on this, it can be a bit of a red flag!" SyndicateRoom

You can raise for up to four-to-six weeks - no more than this. We’ve got a lot of history showing that if you stretch it out more than that it doesn’t help the campaign.

It takes about a month to close the round and confirm all investments.

What’s the USP of your offering?

We only have high-net-worth investors with experience, so if you’re after more than the money you’re more likely to get this from SyndicateRoom.

We don’t provide additional services in terms of setting up SEIS, but can certainly introduce people to contacts. All investors go into a nominee structure.

Scottish Investment Bank

The Scottish Investment Bank is part of Scotland's main economic development agency and is supported by the Scottish Government. Beahurst data shows it was involved in financing 20 investments in the £250,000 to the £2m range last year.

Interviewee: Spokesperson

Case studies: IOmet, Berwickshire Community Renewables, CelluComp

How active are you in providing scale-up finance?

In the 2015-2016 financial year, we invested £52m in 133 Scottish companies. This helped companies leverage £277m of private investment.

We operate two co-investment funds that provide financing in this range. Through the Scottish Co-investment Fund, we can match accredited investment partners up to a maximum of 50% of the total funding package. We can provide from £10,000 to £1.5m, as part of a total deal size ranging from £20,000 to £10m.

Through the Scottish Venture Fund, we can invest alongside a range of private sector investors, again investing up to a maximum of 50%. We can provide from £10,000 up to £2m, as part of a total deal size ranging from £20,000 to £10m.

What are your criteria and specialism?

We invest in businesses with high growth and export potential. Our investments are made into businesses across a number of sectors – with the majority tending to be in technology and life sciences companies.

See:  The UK government invests £85 million in peer-to-peer lending sector where the watchdog has ‘concerns’

Over what period are you looking to invest?

We have been an active investor in high-growth businesses since 2003 through a variety of co-investment funds and this will continue to be the case through our current equity funds and any future funds we put in place to address identified supply gaps in the risk capital market.

What’s the best way to approach you for investment?

There are different ways in which you can get in touch with us. If you are unsure about the finance that is right for your business you can get in touch with our financial readiness team to find out more about our offering and the different funding options available.

"We only accept around 10% of the businesses. We have very strict criteria to ensure that companies selected have the best chances." Seedrs

Alternatively, if you have a general enquiry you can contact us through our website or if you have already engaged with a private sector investor they can get in touch with us to find out more about our co-investment approach.

How long does it normally take to get an investment?

Every deal is different and this depends on individual circumstance.

What’s the USP of your offering?

In addition to the investment, we are focused on ensuring that companies have the opportunity to access the more-than-money support required to grow their business, both from Scottish Enterprise and the partners that we work with in the wider investment community.

After investment, our portfolio management team work alongside the companies we invest in to ensure that the outcomes of investment are maximised for the company, the investors and the Scottish economy.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at www.ncfacanada.org.

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