It sounds like crowdfunding gone mad, but the first crowdfunding fund to invest in crowdfund start-ups is ready to launch.
The Crowdcube Venture Fund is looking to raise a £5 million war chest to finance new projects.
Crowdfunding lets a group of investors pool funds to put into new projects to spread the risk of getting in on the ground-floor of a new venture.
Several online platforms specialise in raising cash for firms and projects that cannot attract debt funding from banks.
Crowdfunding takes several forms – from taking an equity stake to donating money to entrepreneurs pitching for finance.
Wrapping investments in SEIS
The Crowdcube venture can also wrap investments in the Seed Enterprise Investment Scheme or Enterprise Investment Scheme.
Both offer generous tax breaks to investors putting cash into qualifying companies to make the opportunity even more financially attractive.
Crowdcube’s fund is running a joint venture with the Braveheart Investment Group.
Darren Westlake, CEO and co-founder of Crowdcube, said: “The intention is to offer everyday investors with choice.
“They can invest in a fully-managed fund. The idea is to attract investors who want to be involved in equity crowdfunding but don’t have the time or resources to fully research opportunities to create their own diversified portfolio.”
Spreading the risk
One of the issues of SEIS and crowdfunding is due diligence before investing can cost up to 10% of the value of the investment.
With the SEIS cap of £100,000 a tax year, this can add a disproportionate cost to the investment which needs to be considered as part of the return.
The new fund will take multiples of £2,500, and investors can top-up their initial input over a two-year timescale.
Crowdcube reports that the equity platform has raised more than £17 million for 90 start-ups from more than 57,000 registered investors.
Geoffrey Thomson, chief executive of Braveheart, said: ‘There are a number of investors who like the crowdfunding concept but who, for one reason or another, find the DIY route a problem. We hope they find this new initiative of interest.”
The fund will have set-up and ongoing administrative charges.
The Crowdcube web site reckons investors will pick up a 7% over a five-year investment in the new fund.
The platform points out that crowdfunding is only for sophisticated investors who must understand the risks of taking part in start-up businesses that have a high drop-off rate over first three years of trading.
