Is the world of alternative finance about to go quiet for the summer holidays? That’s anybody’s guess but you might well think so, given the burst of activity during the last week of July. Equity crowdfunding platforms Crowdcube and Seedrs both raised large new funding rounds (£6m and £10m respectively) from big-name strategic investors to accelerate their expansion, while on the P2P lending side Funding Circle revealed plans to float its own fund on the stockmarket that will invest in loans on its UK and US platforms. How much else can there be on the pre-holiday to-do list after that lot?

 

 

The stream of announcements and the reports that followed offered some fascinating new information on some of the biggest names in alternative finance. Here are a few of the things that struck me:

 

Valuations – Crowdcube’s latest funding round values the biggest equity crowdfunding platform at £51m, while Seedrs’ valuation is £30m. These are pretty aggressive numbers. Crowdcube charges 5% on completed deals and has funded just shy of £100m since launch so its latest valuation represents a multiple of about 10x all the revenue it has ever generated. That sounds high but compare it to Funding Circle, which raised money a few months back on a valuation of close to $1bn. Let’s call it £600m for illustrative purposes. 

In very rough terms, Funding Circle has lent about £750m to date, taking 1% a year from the lenders and charging borrowers a variable arrangement fee that probably averages out at around 3%-4% overall. That gives a guesstimate for revenues to date of around £35m. At a £600m price tag, that works out at around 17x its historic revenue stream. Why the difference? Simple: Funding Circle specialises in debt, which is a much bigger asset class than equity and so offers the prospect of higher lifetime profits from any investment in it. 

And don’t forget Funding Circle has an established foothold in the most valuable market of them all, the US. Those two factors alone are enough to explain the valuation gap – and why Crowdcube and Seedrs remain so keen to grow and establish a sizeable international presence. Hence the need to raise new money.

 

I wrote in this blog three months ago about a deal on Syndicate Room (where I’m a shareholder) in which a quoted company, Sandal, used SR’s platform to issue shares to the public, and suggested that we could expect to see a lot more deals like this as online platforms started catering for a much wider range of businesses seeking equity funding. You can read that post here. 

I also suggested that this might offer a cheaper alternative to the band of smaller City brokerages that specialise in raising money for companies on Aim and the lower end of the Main Market. Sure enough, who should turn up as the leader of Crowdcube’s latest round but Numis, arguably the leading City brokerage specialising in smaller company IPOs. This is a very significant tie-up. Conventional brokerage at the small cap end is starting to meld with online equity crowdfunding and offering a clear view of the shape of things to come. 

In the near future, online platforms are going to offer universal access to equity investment in companies at every stage – from Seed EIS opportunities to growth capital rounds, IPOs on Aim and the Main Market and secondary offerings. This is certainly the scenario that Oliver Hemsley, CEO and founder of Numis has in mind. “This investment in Crowdcube will put Numis at the centre of the entire investment chain, from initial start-up capital all the way to IPO,” he said in the release that accompanied the deal. Online platforms would “help the public markets evolve and connect retail investors directly with fast growing businesses”.

Crowdcube will bring Numis hugely enhanced deal flow, and Numis will bring “discipline and reality”, according to Hemsley, to the valuations on Crowdcube, which have at times raised eyebrows. Expect more tie-ups like this between traditional and alternative players, and don’t be surprised if Numis ends up buying a much larger stake in Crowdcube.