Crowd funding has a strange reputation within the property industry.
Viewed as an emerging but sometimes risky way for relatively inexperienced investors to take a punt on the latest proptech, online estate agency and home buying start-ups, it has been tainted by the failures of some high-profile ventures that used crowd funding to raise millions but ultimately failed.
The most notorious example is eMoov which after raising approximately £4 million from investors ran out of cash only a few weeks after its second fundraising effort on Crowdcube.
In December 2018 it went into administration revealing losses of £3 million a month prior to its collapse.
eMoov’s name, web address and technology were bought soon afterwards and the website re-opened its doors in January under new management.
Other failures have followed but overall the industry has a lot to thank crowdfunding sites such as Seedrs and Crowdcube for.
Without them many property and home-related start-ups would have neither won initial funding nor gained the publicity that a crowd-funding raise can attract.
These include Viewber, Housers, Movebubble, Howsy and SPCE.com all of which received initial funding from angel investors but then secured additional funding crowdfunding platforms.
What’s less obvious to many in the industry is how these sites work. Although at least £17 million has been raised on Seedrs and Crowdcube for companies operating in the sectors directly or indirectly involved in property, looking at the pitch pages doesn’t always reveal how the game works.
In a bid to find out, Dealmakerz tracked down one of the most senior and influential figures in this sector, Kirsty Grant.
She is the Chief Investment Officer at Seedrs and comes from a mergers and acquisitions legal background and has been at the company for just over four years.
One thing that’s clear while talking to her is that the crowd funding sector is very grateful to the property world, which in Seedrs case makes up 8% of all the nearly 800 pitches that have been funded on the platform, making it one of its largest ‘groupings’.
The most high-profile companies that have raised money via Seedrs have been mostly peer-to-peer style mortgage buy-to-let platforms including British Pearl, Vesta, CrowdProperty, Landbay and CapitalRise.
Other more proptech-orientated companies to have also raised money on the platform include lettings tech firms Movebubble and the Urban Collective.
“The so-called ‘peer to peer’ lending platforms do particularly well because there’s obvious synergy between a crowdfunding site and a crowdfunded mortgage lender,” says Kirsty.
She says Seedrs didn’t expect so many ordinary investors to pile into property on the platform.
“We always thought that a service like ours would be attractive to investors interested in this kind of asset class but although initially we expected it to be a narrow set of specialist investors, it proved popular with a much wider range than that,” she says.
“I like to think we’ve helped to blow the doors open for property.”Kirsty Ward, Seedrs
Seedrs’ biggest success has been buy-to-let mortgage marketplace Landbay which completed its first round with Seedrs back in 2014 for just £70,000 but went on to raise £6.5 million via the platform from 1,700 investors.
Landbay is a good example of an unusual aspect of crowdfunding that many within the property industry aren’t aware of.
Services like Seedrs not only sell their platform as way for VCs to find new opportunities and for start-ups to find potential backers, but also as a way for businesses to find ‘ambassadors’ and supercharge their marketing.
“It’s also good for entrepreneurs operating in more niche areas who might otherwise struggle to find the right kind of investor who understands their proposition,” says Kirsty
The overall logic is this. Companies like Landbay mine their customer databases to offer people who’ve used their service an investment opportunity.
It may sound strange, but it does makes sense. The most enthusiastic supporters of digital disruptors within a market are those who have benefitted from and appreciate their service or product
eMoov played on this heavily and many of its small investors were vendors who had used its service and were ‘evangelical’ about the money it saved them.
What many of these small investors didn’t realise is what goes on in the back rooms away from prying eyes.
Often seed investors will agree to provide further funding when the business needs new cash but only if it’s part of a crowdfunding pitch. Theirs are often the initial figures at the top of the ‘investor’ lists and usually for between £100,000 and £150,000.
These key players are either well-known VCs or institutional investors ploughing in cash that they might made available anyway but who use their financial muscle as a bolster for the wider fund-raise among smaller investors.
So how does Seedrs make money from all this? As well as offering to make the promotional videos, presentations and landing pages for a pitch for a fee, it also charges a percentage-based fee and also a ‘carriage fee’ which means it get a cut of the profits made from the sale of a company, or when investors profitably exit at a later date
“This means we have exposure to our entire portfolio,” says Kirsty. Seedrs is also ‘spreading its tentacles’ as she puts it, in another way.
Although its name refers to the ‘seed funding’ some companies originally turned to it for, proptech firms are also using Seedrs to fund much later stages in their development.
“We’ve introduced new products and features that reflect this more mature market,” says Kirsty. “For example, we have a secondary market now, so VCs can get out of their investment before a full company exit.”.
Property companies in the old, pre-crowdfunding days used to go to the UK’s stock markets to raise funds to expand and many digital ones, like Purplebricks, still do.
But it’s clear that Seedrs’ ambition is to eat into this market and become a funding vehicle for companies in the property industry and beyond looking to raise money for their business development in a much simpler and quicker way than they could in London’s Alternative Investment Market.
“I think we’ll see that property companies will wait longer and longer before they launch on those public markets,” she says. Seedrs tentacles may be about to get much longer, it seems.