In the USA, the “Jumpstart Our Business Start-ups (JOBS)” Bill was passed in the Congress, the acronym of which cleverly links liberalisation of capital markets with boosting jobs growth. Significantly the act is designed to give a boost to IPO activity, the issue of new shares onto the stock market, which has been a traditional source of funding for young companies. This market has been dormant of late and the JOBS Act is designed to make this easier by releasing young companies from some of the many regulatory burdens in place in the USA—thereby freeing them to raise equity capital more easily. The theory is that with more capital will lead to more business activity and jobs will follow. With banks also under pressure to boost capital ratios, and the dampening effect this has had on lending, equity funding can be an important alternative to support economic activity. Online crowdfunding platforms are expected to make substantial use of this newer, freer regime.
In the UK, crowdfunding has also been growing in popularity. According to the BBC, Exeter-based Crowdcube has raised over £2.5m to fund UK businesses – including itself. The link to jobs has also been noted. The company says that these investments have led to the creation of 320 jobs. In addition to job creation, crowdfunding has played an important role in filling some of the gaps created by the drastic reductions in UK public spending. One example of this is a recent endeavour by Spacehive, the new community development crowdfunding platform, which helped a community centre in Wales secure desperately needed top-up funding to begin construction on a community centre in Glyncoch. Had they been unable to use Spacehive for the final £30-40k, a project which took years to design, develop and fund-raise for, would have been abandoned (the deadline for full funding was 31 March, 2012). Spacehive helped Glyncoch raise the needed final sums, with the assistance of well-followed Tweeters such as Stephen Frye.
Crowdcube and Spacehive are not alone. There are many others in development, and a few more which already exist like Buzzbnk, which helps connects people and projects online. One of the newer crowdfunding platforms, supporters are also able to use the site to offer non-financial forms of assistance to the causes they support. Of course, the dominant “granddaddy” site of this type is Justgiving, which recently sent customers an announcement that over £1 billion has been raised via the website for UK charities. Justgiving expanded early into the US market and is now extending its reach into other geographies.
The bottom line is that crowdfunding is a hot new area, and that the UK, with its relatively liberal legal and regulatory structure and many creative and successful crowdfunding endeavours is a leader in this area. If you have not explored how to use crowdfunding to achieve your aims, it’s time to start!
First Published in Third Sector in April 2012.