“We focus on quality over quantity,” says Goncalo de Vasconcelos, co-founder of SyndicateRoom, which in just 30 months has emerged as one of Britain’s leading crowdfunding platforms.
In that time it has helped raise over £50mln for the small and growing businesses that are the lifeblood of the UK economy.
Its approach is subtly different from the traditional model, which is company-focused.
It is one that provides protection for the ‘crowd’ of small investors that get behind fledgling enterprises.
And it also appears to have a positive impact on failure rates.
Practically, it is focused on putting the investor first (rather than the firm), which means any fundraising on the site is ‘cornerstoned’ by an experienced, professional backer of growth companies.
This person carries out the leg-work research on the business, negotiates the price of the shares and, crucially, buys in on the same terms as the rank and file investor.
“So, instead of having the crowd investing in all the deals the professionals don’t want to invest in, we allow the crowd to invest in the deals the professionals are interested in,” explains de Vasconcelos.
Referring to the competition, he says: “It is really easy to find companies looking for money. It is much harder finding good companies.”
The minimum investment is £1,000, a sum that makes people think before they make the leap, says the SyndicateRoom boss.
The majority use the tax-efficient enterprise investment scheme, which means they have to sit on the stock for at least three years before selling.
Earlier this month it outlined plans to raise up to £2.3mln, which it did in just 10 hours. The offer is still open.
In all, 70 companies, or 80% of those who have listed on the SyndicateRoom site, have raised funds (compared to an industry average of 35-50%)
Only one of those businesses subsequently failed, while a second was wound up after returning most of its cash to investors.
To put those figures into context, the industry average failure-rate for crowd-funded ventures tends to be around 20%.
And it can be a struggle on other crowdfunding platforms to actually raise the cash – the success rate across the sector is 35-50%.
So, SyndicateRoom seems to be doing something right.
“If companies then get funded, they are funded by sophisticated investors who understand the risks; people who thought it through before they invested,” says de Vasconcelos.
“What the data is starting to show is astonishing (with regard to the success rate of SyndicateRoom).”
A modest deal in the biotech sector hints at a significant opportunity for the platform that could also level the playing field for private investors in traditional, stock market quoted shares.
It recently helped bring in new shareholders for a stock placing that raised £3mln for the immuno-oncology firm Scancell Holdings (LON:SCLP).
Small investors tend to be locked out of these deals, which offer the City institutions and other professional outfits the opportunity to acquire cut-price equity.
“We felt the public markets were a natural transition for us,” says Tom Hinton, head of capital markets.
“The point is our investors are getting these shares on the same terms of the institutions, which hasn’t happened previously.”
He is full of praise for Panmure Gordon, Scancell’s City broker, for embracing so wholeheartedly this new funding source. “People are starting to say ‘hang on that was a smart move’,” Hinton says.
SyndicateRoom hopes to get involved in new share listings too, having worked hard to be approved as an intermediary by the Financial Conduct Authority and the London Stock Exchange.
It is the only crowdfunding site to have been given the regulatory green light.
There are a number of really tasty initial public offerings on the menu, including Soho House.
The biggest, scheduled for later this year, is state-controlled bank Lloyds (LON:LLOY), which is being orchestrated by the UK Financial Investments (UKFI).
“We are speaking to UKFI in relation to Lloyds and we hope to be appointed an intermediary on that,” says Hinton.
SyndicateRoom earns an income by taking a percentage of what is raised on the site; or if it is a capital markets deal it shares the fee with the broker.
If it stopped investing in growth, the company could be profitable tomorrow, says de Vasconcelos.
But the management, staff and shareholders have their eye on an altogether bigger prize.
They believe SyndicateRoom can be a significant source of alternative funding – not just for start-ups, but for listed businesses such as Scancell looking for relatively small sums that are underserved by the market.
“We are not here to replace any existing player. We are here to collaborate with the existing ecosystem to bring this whole new demand,” says the SyndicateRoom CEO.
“As we do that we can start to bring a serious amount of new capital to the industry. That will easily place us into the billion dollar category.”