Britain’s largest crowdfunding platform has been put in an awkward position after announcing a new venture on the same day that a company which raised £6.6mn on its site from private investors fell into financial difficulties.
Crowdcube announced on Tuesday that it would partner with Octopus Investments, the UK’s largest venture capital trust (VCT) fund manager, to offer VCT funds to a wider range of retail savers by slashing minimum investment levels.
Octopus has lowered its minimum from £3,000 to £500 for Crowdcube clients. Investors will be charged 2 per cent upfront and 0.4 per cent in annual management fees — comparable levies to those at conventional brokers on higher minimum investments.
The launch came amid a squeeze on financial markets that is restricting smaller companies’ access to funding. Clim8, an investment platform which raised money from Crowdcube investors in 2020 and 2021, said it would close customer accounts at the end of May after failing to raise new capital.
In a statement to the Financial Times, Clim8’s chief executive Duncan Grierson said the business remained solvent but he could not guarantee that crowdfunding backers, who hold a 15 per cent stake, would see their investment returned if the business was eventually sold.
Crowdcube defended its approach, saying that the two VCTs on offer had not invested in Clim8. “The Clim8 news is unrelated to our VCT announcement, the two offerings are not connected to one another . . . Investing in early-stage companies and investing in VCTs both carry risks.”
Crowdcube said the VCT offer was distinct from its core crowdfunding business. However, on its website the opportunity to register interest in the VCT was this week marketed alongside access to single company investments.
The Clim8 news reinforces the views of critics who think the start-up space is risky for retail investors. “Three thousand pounds is already quite low for what is an asset class for sophisticated investors,” said Jason Hollands, managing director at Evelyn Partners, which owns investment platform Bestinvest.
He said that it “would be wrong for the VCT market to attract novice or small investors due to the risk of these products”. Bestinvest screens prospective investors to assess whether they have maximised their Isa and pension allowances, regarded as safer tax-efficient vehicles.
But supporters of investment in early-stage companies argue that individual flops should not preclude keeping the space open to retail savers, and even widening access, as with the Octopus/Crowdcube move. They claim that start-ups will need a wider pool of investors because chancellor Jeremy Hunt has just given wealthier people new incentives to increase their pension pots, so reducing the attractions of VCTs.
“Existing VCT audiences in the UK have just had the door opened for their customers to put more into pensions,” said Matt Cooper, co-chief executive at Crowdcube. “The requirement for the VCT industry to go downstream and look at a younger demographic of investors is now more acute.”
Octopus and Crowdcube said they had not set a fundraising target, though Octopus director Ruth Handcock said they had “big ambitions” and were confident in their business case with a “buoyant pipeline of opportunities”.
Tom Britton, co-founder of Syndicate Room, a provider of tax-efficient Enterprise Investment Scheme funds, said the current market was challenging for VCT fund managers who were themselves wrestling with underperformance.
Private equity and venture capital participated in 9 per cent fewer funding rounds year-on-year in 2022, according to consultants Beauhurst.
Only just over £800mn of an ambitious £1.3bn funding target has been raised by all UK VCTs in the weeks leading up to the close of the tax year on April 5, according to broker Wealth Club. Record funding of £1bn was raised in 2021-22.
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