News

Are investment firms using crowd finance to raise a fund?

May 05, 2016 • By Emily Mackay


With the launch of Downing LLP’s new crowd finance platform Downing Crowd, we were thinking about the extent to which other investment firms are already using crowd finance as a new source of funding. Those considering it are coming to us with a message of fundraising difficulties and expectations that crowd finance could plug a looming shortfall.

With the launch of Downing LLP’s new crowd finance platform Downing Crowd, we were thinking about the extent to which other investment firms are already using crowd finance as a new source of funding. Those considering it are coming to us with a message of fundraising difficulties and expectations that crowd finance could plug a looming shortfall.

Whilst Downing has gone the full hog and launched their own platform, we decided to explore whether others are already tapping into the capability and reach of existing platforms to raise for their own investment funds. Using our dashboard, we compiled a bespoke search and explored the results (if you want to see the search, sign up for a trial and it’s in the example searches).

Our first conclusion, is that raising a fund using a platform is definitely ‘a thing’. We have captured around 30 instances of firms raising a fund for onward investment using crowd finance. Let’s call these firms the ‘early adopters’.

These early adopters are raising mostly in the UK and US, which is to be expected as a) the UK and US are leading the crowd finance movement by number of platforms, volume transacted and maturity, and b) they have strong financial centres and are home to many investment firms (please note, there is some data bias here as our coverage is strongest in these geographies). In some instances whilst the raises were on US/UK platforms, the funds were set up to invest in other geographies (for example, a fund investing in India).

Of the funds, three purposes dominated:

  • Investments in renewable energy infrastructure

  • Investments in property portfolios

  • Investments in the entertainment industry.

The fund campaigns emphasise the specific expertise and track record of the teams or firm behind the fund. This relates to one barrier to crowd finance adoption that platforms often tell us about: non-professional investors feeling they have insufficient expertise to pick out the best investment opportunities on a platform. Perhaps platforms are therefore keen to attract investment firms in order to help build investor confidence and in turn increase willingness to commit funds.

The investment firms we speak to explain that the growth of crowd finance allows them to accept smaller investment amounts directly from many non-professional investors, reducing their reliance on the smaller pool on which they traditionally depend. In order to better understand the potential of crowd finance, they come to us with questions, including:

  • What amounts can we reasonably expect to raise?

  • Are funds with certain investment focus more successful than others?

  • Is there a good track record of the crowd investing in the types of opportunities my fund focuses on?

  • Which platforms are attracting campaigns from investment funds?

So yes, we are seeing early adopter investment firms already take advantage of crowd finance platforms or the underlying technology to raise a fund (not just to deploy capital). It will be interesting to see the speed at which others follow suit.

Emily Mackay