How to invest in crowdfunded businesses


(Andrew Clark) #1

There seems to be a lot of interest in buying Monzo shares. If they do another round and open it up to customers or if you’d like to try and invest in the next Monzo you might find the following of interest.

I have experience only as an investor, it would be good to hear the view from the side of the startup. I have invested in around 30 crowdfunded businesses - my smallest investment being £100 and my largest being a couple of thousand. I’ve done this via Crowdcube, Seedrs and directly with Brewdog in an earlier round. My preferred platform is Crowdcube as the opportunities on there have generally been more appealing (not great as I write but they churn frequently with new offers) My main interests are breweries/ distilleries and Fintech.

Disclaimer: a number of the businesses I’ve invested in have already folded with no money left for shareholders. You can lose the lot and the recommendation is to only invest a proportion of your total investments like this.

Before you can invest (you will have to answer a small number of questions) it’s important that you understand a number of key features. The discussion boards on both sites are full of people who didn’t read the small print. The most notable points are:
1: you may lose it all
2: your money may be tied up and you may never get it back. They are mostly in a state where you can’t get money out but Seedrs does have a secondary market which may help. As you may have seen on here it is also possible in some circumstances to sell privately but it’s safer to assume that’s not viable.
3: your shares may be diluted as more stock is released. This is a problem if you want to own a certain percentage of the company but tends to be associated with an increase in value of your existing stock.
4: not all shares are equal. Generally you’ll have no say in any decisions. Check out what type of shares you are getting if that is a concern.

So far it looks like a silly idea. But there are also incentives to invest and the possibility in some cases of an IPO or trade sale that would give you a lovely return (please note it is very rare for early stage growing businesses to offer a dividend). Here are what I see as the opportunities:
1: you can invest as little as £10 so can genuinely test the water and play around with low risk investments.
2: you can invest in exciting new technologies or something you like (in my case beer)
3: often there are rewards. (When I bought shares in Mondo (sic) it gave access to be a beta user but, better than this, was 6 bottles of gin from Santamania)
4: there are tax incentives from the U.K. government that do a number of things such as protect profits (SEIS) or are tax deductible (EIS and SEIS).

My favourite thing is seeing the businesses grow and employing more staff - I genuinely get a buzz when Bird and Blend open a new store or CauliRice export to a new country. Of course I’m hopeful I’ll get a return one day but as of just now not one of my investments has exited to realise any return (my oldest crowd investment is 3 years). These are long term investments and I do expect one or two to pay off eventually (Monzo you know who you are).

At the moment I’m most excited by my investments in Monzo (yay), Freetrade, Brewdog (i’d like to cash in now please!) and Wave Application (I think they’ll be acquired at some point) but I think in most cases it may be a few years away.

Be careful out there. It’s fun but the caveats above are real. Your money will be tied up and you may lose it all.


#2

I’ve never looked at the Crowcube or Seedrs discussion boards.
Do some people really not realise this? :astonished:


(Bruce) #3

Even if they do realise it still hurts! Where are my millions my 100000% returns


(Excited about Christmas) #4

Great post. I’m in a very similar position, although I never touch breweries, because their USP is quite literally a matter of taste. Fingers crossed for Cauli Rice!


#5

I am mostly interested in fintech, but thanks for your experiences!


(Andre Borie) #6

How to invest in crowdfunded businesses

By only investing what you can afford to lose. This can’t be repeated enough times.


#7

Hi - do we know when Monzo might have another round of crowdfunding?


(Edward) #8

Yep, though even “afford to lose” money still hurts. I’m still sad over Sugru getting acquired for a song, but at least some of that is down to wanting to see them succeed with a great idea (and how many genuinely new chemical products do you see coming from anyone outside of Dow or 3M?).