We looked at the crowdfunding models offered by UK-based crowdfunding platforms listed on the CrowdingIn directory
There are are currently 65 active UK-based crowdfunding platforms listed on the CrowdingIn directory. We looked at how many of these platforms reported offering each of the different crowdfunding models (Donations, Rewards, Lending, Equity or ‘Other’). Note that each platform is able to offer more than one model.
Lending-based crowdfunding (often known as peer-to-peer lending) is the most popular model and is offered by 42 per cent of platforms on the CrowdingIn directory. Previous Nesta research has shown that the lending-based model also makes up the largest proportion of the crowdfunding market with regards to the amount of money raised per year (around 75 per cent in 2015). The fact that the percentage of the total market attributed to lending-based platforms is considerably higher than the percentage of the platforms offering this model highlights that the average amount raised per lending-based platform is substantially larger than for other models. Nevertheless, the majority of money raised through lending-based crowdfunding is concentrated through a handful of large platforms such as Funding Circle, RateSetter and Zopa. Forty per cent of platforms offer more than one model; these are known as ‘hybrid’ platforms. The most common hybrid platforms are those that offer both donations and rewards-based crowdfunding (22 per cent of platforms), such as Spacehive and Hubbub.
Equity crowdfunding is offered by 31 per cent of platforms, while donations and rewards crowdfunding are each offered by 23 per cent and 22 per cent of platforms respectively. While there are only a handful more equity-based platforms than rewards-based or donation-based platforms, equity-based crowdfunding makes up a much larger proportion of the total amount raised through crowdfunding each year; amounting to around 10 per cent of the market, compared to less than 1 per cent for donations-based and less than 2 per cent for rewards-based. This indicates that there are a large number of donations and rewards based platforms which are raising relatively little money for projects. Crowdfunding models under the category ‘other’ are offered by 6 per cent platforms. These models include financial products such as community shares and debentures.
While most crowdfunding platforms are generalists, helping individuals and organisations across different verticals to access finance, others focus on particular sectors or themes. Active platforms on CrowdingIn reported whether they help provide businesses with finance, support social good projects or fund arts and creative projects. Note that each platform is able to focus on more than one of these areas.
The largest number of platforms focus on Business Finance (60 per cent of platforms), with the majority of lending-based and equity-based platforms catering almost exclusively to this sector.
This year's biggest business crowdfunding success story came from Monzo, the digital challenger bank, who raised a record-breaking £2.5 million from more than 6,500 investors through its equity crowdfunding campaign on Crowdcube. The money they raised through crowdfunding was part of a £22 million Series C investment round, the remaining of which came from major venture capital firms.
The second most common sector of focus for crowdfunding platforms is social good (37 per cent of platforms). These platforms typically offer donations or rewards crowdfunding (and sometimes community shares) and cater to a range of social good projects, from the restoration of community buildings to political campaigns. A particularly noteworthy case of political crowdfunding comes from More United who raised £500,000 over two crowdfunding campaigns to help fund 49 chosen MPs to make a bigger impact in parliament.
Arts and creative is also a popular sector for crowdfunding platforms (22 per cent of platforms) An example of how crowdfunding can help emerging artists is from author Tom Cox, who received contributions from 1,511 backers to fund the publication of his new book ‘21st-Century Yokel’. Tom was able to reach his crowdfunding target in just seven hours.
Fifteen per cent of platforms said they support ‘other’ sectors. Among these other sectors is the funding of real estate mortgages and development through lending-based and equity-based models. Previous Nesta research has shown that real estate is now one of, if not the, biggest crowdfunding sector by amount raised. The CrowdingIn directory includes a total of seven active UK-based real estate platforms including Property Moose, Proplend and Propnology. The popularity of these sites may in part be a result of the introduction of tougher mortgage rules in 2014, meaning that buying a property on their own is outside the reach of many people who still see real estate as a desirable investment.
The amount of money charged to crowdfund a project varies from platform to platform. On average, active platforms charge a commision of 4.7 per cent on the total amount raised. The average commission charged is very similar between models (Donations = 5.9 per cent, Rewards = 5.0 per cent, Equity = 5.3 per cent, Lending-based = 3.6 per cent and Other = 4.4 per cent).
While the regulation around equity and lending-based crowdfunding makes running these models more expensive than the unregulated donations and reward based models (see below), platforms are able to keep fees low due to the larger volumes of money being raised. Platforms running these models also sometimes charge a fixed set-up fee of up to £2,000 on top of the commission they take to cover legal/due diligence costs.
Nearly four in five platforms in the directory are set up such that fundraisers only receive the funding raised if they reach the fundraising target they set at the beginning of the campaign within a fixed period of time; this is known as an ‘all-or-nothing’ model. The other 21 per cent allow the option for ‘keep-it-all’ campaigns, where fundraisers keep all the money they raise from the crowd regardless of whether they reach their target.
This blog has given you a snapshot of what crowdfunding platforms in the UK look like today. Read our blog on UK crowdfunding platform trends to learn how crowdfunding platforms have changed over the last few years.