After 12 years as a thought leader and innovator in the RegTech sector, JWG has arrived at an inflection point, and we’ve turned our attention to what we need in order to support rapid growth. To this end, we will shortly be launching a crowdfunding campaign on Crowdcube, inviting our community of users and subject matter experts, as well as the general public, to become part of the JWG and RegDelta story.
What is crowdfunding?
Crowdfunding is mass retail investment, typically through an online platform, in the unlisted equity or debt of businesses, who seek capital to finance rapid growth. As of August 2018, JWG is in the process of raising funds through Crowdcube, one of the world’s first and biggest equity crowdfunding platforms.
Online equity crowdfunding is now firmly established alongside venture capital and private equity funding. The British Business Bank’s research shows that 28% of all UK equity deals as of mid-2016 were crowdfunded, and 47% of London-based business angels have used a crowdfunding platform.
What’s so good about crowdfunding?
Unlisted equity is a world apart from investing on the stock market. High growth businesses often fail even if they have great products and talent. So venture capitalists typically assume that they will lose some or all of their money on the majority of deals they enter, but the few businesses that do succeed will grow big enough to make up for this and provide a return across their portfolio. Because they are diversified across multiple investments, this arithmetic stacks up. The result is a high-risk asset class that provides double-digit returns on investment per year.
Before crowdfunding, however, individuals could only pursue this strategy if they were very wealthy – tiny investments weren’t worth a funder’s time spent on due diligence, an analyst’s time spent producing research notes, or an issuer’s time spent pitching to investors. Crowdfunding helps investors through this process by making it easy to access pitches online and either carry out your own due diligence or piggybacking on the work of others.
What returns can the crowd look forward to? Industry researchers Altfi.com calculated annualised returns at 34% after tax for all companies crowdfunded up to 2015 and 19% for all companies funded up to 2016 – both on the assumption of generous SEIS tax incentives. Remember, these figures are heavily dependent on Altfi’s assumptions – there are rarely any market prices to work with. But they are indicative.
The crowd often invests not just for a return but for the thrill of being part of an exciting growth story like JWG’s; or because they believe in a product like RegDelta and want to help get it to a larger market. And companies have been known to tap crowd investors for their advice and contacts.
What should I look out for?
Even with these advantages, early stage equity investment will never be a conservative option. As an investor, you are relying on two things happening to realise returns – you need the business to deliver on its growth plans, which is never guaranteed, and you need a liquidity event i.e. a follow-on funding round, to provide you with an exit. UK angel investors take 3-4 years to exit a failed investment and 6-7 years to exit a successful one; and it’s often a wild ride getting there. You should expect the same.
In the typical successful exit the issuing company carries out a follow-on funding round (or even lists through an IPO), with new investors buying out the crowd at a price higher than the one the crowd originally invested at.
Crowd investors are unlikely to have much influence over the timing and context of funding rounds though. The crowd are typically not offered voting shares, and crowdfunding platforms will not typically liaise between investors and the companies they’ve invested in following a funding round.
Going with the grain
For a company like ours, it feels somehow right to be raising money from the crowd. It is our culture to be inclusive, to work with the community in the open and to give everyone a say. Crowdfunding is all about leveraging your network, and so is JWG. We believe in bringing the right people together to solve problems collaboratively. We wanted to tap our community for those who have the skills and appetite to come with us on our growth journey.
To bring our network on board, we also needed to make it easy for the best, brightest and busiest to come and engage with us. Everyone in this industry is extremely time-poor and not all of them have an army of lawyers and accountants to help them make a deal happen. For those who don’t, the streamlined experience of investing via Crowdcube is just right, and it comes with the comfort of dealing with a regulated firm, following a proven process that’s already worked for half a billion pounds’ worth of investment.
How can I get involved?
Setting up an account with the likes of Crowdcube is as easy as setting up an online groceries account, but for a platform to show an investor the details of a pitch and allow them to invest, there are two more steps. In summary the investor must:
- Have taken advice OR be knowledgeable enough to proceed without advice. Don’t worry! You don’t need to call your IFA. The platform can test your understanding, in what is sometimes called an ‘appropriateness test’. Usually this is an actual multiple choice test you have to go through; it’s a one-off and if you’re interested in joining the crowd it is best to get it out of the way early.
- Certify that they’re only investing money they can afford to lose. As an investor you can self-certify that you are a high net worth or sophisticated investor OR attest that you have no more than 10% of your net investable assets invested in non-readily realisable securities, and will not cross that limit in the next 12 months. Everyone taking the latter option is known as a ‘restricted investor’, and most of the crowd falls into this category.
Next steps for JWG
JWG’s Crowdcube pitch launches later this month and will only run for a short period of time. It is not often that investors get a chance to buy into a self-sustaining innovative firm like ours, so we anticipate significant demand –stay tuned and be quick!
 British Business Bank (2018) ‘Small business finance markets 2017/8’ https://www.british-business-bank.co.uk/wp-content/uploads/2018/02/Small-Business-Finance-Markets-2018-Report-web.pdf
 Altfi.com (2015) ‘Where are they now?’ http://www.altfi.com/downloads/WhereAreTheyNow.pdf
 Altfi.com (2016) ‘Where are they now? 2016’ http://www.altfi.com/download/Where_are_they_now_2016
 Wiltbank, R. E (2009) ‘Siding with the Angels’ NESTA https://media.nesta.org.uk/documents/siding_with_the_angels.pdf
 A total of £504,507,399 has been invested via Crowdcube as of 17/08/2018 Source: www.crowdcube.com