At ClearlySo, we have helped over 50 organisations to raise about £60m in capital since the beginning of 2013. This has not been easy, and even though more than half has come from institutional investors, it is angel investors and high-net-worth individuals (HNWIs) that have proved an extremely reliable mainstay of our business, funding the bulk of the high-impact organisations we assist. ClearlySo launched Clearly Social Angels in March 2012, and it forms a small but vitally important element of our individual investor network of over 600 angels.
However, we are limited, due to regulation, to market these high-impact opportunities only to HNWIs and institutions. As a result, retail investors are unable to play a part in the Impact Investment Revolution. This was a point made in a recent report by Triodos as part of the G8 Social Investment Task Force, entitled Impact Investing for Everyone.
Crowdfunding is a cost-effective mechanism to gain access to retail investors; we have begun to engage with the sector to provide this access as part of our service to the companies we serve. This source helps to complement the funds our HNWIs can provide and should broaden the market for impact investment. It is worth noting that crowdfunding platforms have been pursuing us for a few years; the sorts of companies we assist are often the type of company that touch people deeply, and can therefore be more successful on crowdfunding platforms. We suspect that the crowdfunders also are comforted by the fact that our angels have already priced the deal, made significant commitments and undertaken due diligence.
Our first foray into working with a crowdfunding platform has been with Extremis Technology, which designs a range of revolutionary new shelters specifically for disaster relief. In this first test case, we are working with the CrowdCube platform. The entrepreneur, Julia Glenn, has written of her experiences in crowdfunding in a blog. She notes that crowdfunding is not a replacement for active publicity generation, but rather demands even more of it. In addition, she makes it clear that having a commitment up front is critical for success – crowdfunders seek to follow the crowd, not initiate.
Although one hesitates to extrapolate too much from a first test, there are a few points to highlight. Joining a crowdfunding platform means two diligence exercises, rather than one. As this becomes more common, perhaps these processes can be merged.
Whereas we seek to prepare companies for presentations to investors, the wide-ranging questions, which come with a crowdfunding exercise are of a different magnitude. Crowdfunders ask very detailed, incisive questions through the online forum on the various platforms. In a similar vein, media interest is greatly increased. Our fundraisings are intentionally discreet; only by exception is publicity generated. Crowdfunding is exactly the opposite and requires serious attention to keeping the flow of media interest going. Progress also takes place in a fishbowl. If momentum is positive, this can be helpful, but otherwise this transparency can make success less likely.
Nonetheless, for companies that have a “public appeal” (including charities and those calling themselves “social enteprises”), crowdfunding can bring the company to a new audience and forge interesting new connections.
We expect to work more with crowdfunding networks over time, and believe it offers a useful add-on to the services we can provide. For impact investing to scale, crowdfunding is essential.
First published in Third Sector in May 2015.