Crowdfunding Startups Thrive in the U.K., Where Anyone Can Play Angel Investor

http://www.businessweek.com/articles/2014-05-27/crowdfunding-startups-thrive-in-the-u-dot-k-dot-where-anyone-can-play-angel-investor

By Tom Britton May 27, 2014

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While I sometimes pine for the sunny beaches of my native California, it’s on the shores of Blighty that my entrepreneurial career, and those of the individuals whose startups my company has helped finance, has taken off.

I came to the University of Cambridge Judge Business School to fuel my entrepreneurial drive, and almost immediately began helping a new company that aimed to reimagine startup investing.

SyndicateRoom allows individuals to invest alongside experienced investors in funding a fledgling business, bringing, if not the wisdom of crowds, at least the funding power of the masses to angel investing. I met the founder, Goncalo de Vasconcelos (also a Cambridge Judge MBA), at a school networking event as he was building the company. At first, I was only helping him with his website. Eventually I got hooked on the vision, so we agreed that after I completed my MBA (I graduated this past April), I would come on board as co-founder. (The name SyndicateRoom comes from the room at Judge where students gather to work on projects and, of course, evokes the name for an investor group.)

What’s an American doing at a U.K. startup? Simple: U.K. regulators have moved much faster than their counterparts in the U.S. when it comes to allowing large groups of people to invest in startups. Six months after we launched SyndicateRoom, we had regulatory approval from the Financial Conduct Authority (FCA), Britain’s equivalent of the Securities and Exchange Commission. Had I tried to create the same thing in the U.S., I’d still have a website saying “Coming Soon” and a Twitter feed full of “Maybe tomorrow” tweets.

Already we’ve helped fund 12 businesses in the last eight months, raising just over £8 million ($13.4 million) for early ventures—everything from a small light aircraft company to a large biomedical firm.

Meanwhile, in the U.S. the SEC has dragged its heels, leaving equity crowdfunding for the masses in regulatory limbo. The U.S. still allows only high net worth individuals or those certified as “accredited” to invest in startups through a crowdfunding platform.

The British agency moved quickly to come up with guidelines that have laid the groundwork for equity crowdfunding to flourish in the U.K. Here, even nonaccredited investors can invest as long as they agree not to spend more than 10 percent of their net assets in any given year. (Regulation is on the honor system.) Some argue that this restriction keeps the “crowd” out of crowdfunding, but given that most startups fail—between 60 percent and 80 percent, depending on the source—I laud the FCA for its efforts at protecting vulnerable investors.

There are big players in the U.S. with millions invested in crowdfunding platforms such as AngelList, Funders Club, and Circle Up, but with the regulations, they’re restricted from reaching the masses. Meanwhile, the U.K.’s leading companies continue to break new ground and move beyond our local market, expanding throughout Europe and even into Australia, New Zealand, and Asia.

SyndicateRoom is a different take on the crowdfunding model. Only companies that have been vetted by, and received funding from, experienced business angels can be listed on our platform. Some U.K. crowdfunding sites are less stringent and have started creating funds so investors can spread their investment easily into all companies on their platform instead of just one.

The U.K. may not be as big a market as the U.S., but British companies do have a pretty big head start on conquering business around the globe.

Britton is Chief Technology Officer of SyndicateRoom. He recently completed his MBA at the University of Cambridge Judge Business School with a focus on entrepreneurship and strategy.