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In the third instalment of a series of articles on the topic of Summer Updates for VCT Fund Managers, Roger Blears comments on how VCT fund managers might consider recommending the option of direct crowdfunding to those of their investee companies who can already count on a large and captive customer community.
Direct crowdfunding (or ‘direct offers’) is not a new concept. It’s been a fundraising model championed by BrewDog through its ‘Equity for Punks’ campaigns since as early as 2009. However, thanks to a tailwind of technological advances and the rise of the active retail investor, the attractiveness of the model for high growth private companies (of any size) has noticeably increased.
There are typically three different direct offer options for investee companies to choose from; an exempted private round restricted to high-net-worth individuals and sophisticated individuals only, a public ‘sub-threshold’ round open to members of the public (so long as no more than €8m is being raised in total) or a public raise using an FCA-approved prospectus (uncapped in monetary terms).
This latter option in particular can be a great stepping stone for an investee company to take prior to an initial public offering, allowing its fan base in as investors ahead of the listing alongside the existing professional investors rather than restricting their participation until afterwards. In hindsight, Deliveroo for instance may have been much better served delaying their IPO for another year and raising some final top-up capital from their loyal customers via a prospectus raise before perhaps a direct listing (as Wise has done) rather than risking the reputational fallout that transpired of locking such customers into a falling share price upon a public float.
From a marketing perspective, the costs of advertising the share offer (whichever route above is taken) and promoting the business itself can be shared – one is a showcase for the other without the company finding itself jostling for space alongside other companies were it to go with a name crowdfunding platform.
Admittedly, crowdfunding is a relatively slow way to raise capital than traditional venture capital or debt financing, and so in our experience those who do choose to take advantage of the model (and succeed with it) are those who do so as much for the marketing benefits as for the capital injection itself.
Therefore, direct offers can be a complementary fundraising tool for topping-up recent venture capital rounds, for bridging between such rounds (and thus keeping the company ‘in the news’), and of course for building momentum and support amongst customers in the run up to a company’ targeted IPO or direct listing.
Talent and good ideas can come from anywhere, companies who do successfully raise using direct offers are not just onboarding shareholders, but advisers, consultants, product samplers, advocates, and promoters.
Together with our FCA-authorised sister company Paxiot, we provide a single-solution, white label offering for our clients (or our clients’ investee companies) who are seeking to raise growth capital from their biggest fans. For more information, please visit www.paxiot.co.uk.
29 July 2021