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FEATURE: Crowdfunding Goes For The Frontier As Model Evolves

Tom Burroughes, Group Editor, London, 24 June 2015


Angels, shadows and crowds
This platform is part of a broader trend of new forms of capital-raising networks and channels opening up, sometimes deliberately designed to fill the gaps left by banks that, often because of tougher capital rules and compliance processes, no longer want to finance SMEs and apparently risky ventures. Sometimes – not always fairly – dubbed “shadow banking”, or more neutrally, “alternative financing”, this sector is proliferating in countries such as the UK and US. (For a view on how this market is evolving in the UK, see this article here.) Only last week, a group of former Goldman Sachs senior managers launched a hedge fund called Firebreak Capital in the US, designed in the words of its founders to be an “alternative balance sheet in the illiquid lending and investment sector, leveraging the emerging disruptive trends in consumer and commercial direct lending, as well as providing private credit, asset-backed and structured finance solutions”. There are “angel” networks of various sizes offering financing/mentoring to small firms and startups, as well as a plethora – particularly in the US and increasingly in Europe and elsewhere – of venture capital firms (such as renowned VC houses in the US such as Silicon Valley’s Sequoia Capital).

The equity crowdfunding (not including debt) market in the UK is worth an estimated £50 million a year – so it is still a drop in the ocean when set against more traditional forms of financing. The pace of change, and the involvement by the UK regulator to scrutinise crowdfunding to prevent abuses, continues to drive attention.

Work is being done by academics to get a handle on its long-term potential (as well as understand some of the risks). Nir Vulkan, who is associate professor of business economics at Saïd Business School, University of Oxford, has been granted funding from the Kauffman Foundation and Nesta to explore the business of equity crowdfunding. Working with Thomas Åstebro from HEC Paris, the 18-month project will explore the criteria for success for crowdfunders and how investors make decisions on what projects to back. (The study is being conducted on Seedrs, a prominent European leading equity crowdfunding platform.)

As far as Tindall is concerned, despite all the noise around crowdfunding, he is not aware of other FCA-regulated platforms such as Emerging Crowd that operate in the emerging/frontier markets space. He intends to make the most of that “first-mover” advantage.

“We currently have two companies live on the Platform, but have a large number in the pipeline that we will bring on board over the next couple of months,” he said.

The firms' funding
At present, Emerging Crowd has two businesses receiving investor backing: BOZZA MEDIA, which is a global online marketplace designed for African artists and consumers - mixture between iTunes and Netflix, and NEO, which Tyndall described as Nigeria's largest and fastest-growing coffee shop chain – the African “Starbucks”.

“Typically we will only look at equity deals that have a convincing exit story within three to five years. The maximum term we will consider for debt is four years although the majority are likely to be three years,” Tyndall said.

Tyndall is keen on Nigeria – with Kenya not far behind. “Nigeria is in a unique sweet spot for investors right now. This month’s smooth transition of power from one democratically elected president to another is a potent endorsement of its political stability, and the falling oil price has spurred its vast economy to diversify rapidly,” he said. (He cited data from the World Bank and other sources giving Nigeria a 5.5 per cent GDP forecast for 2015 and Kenya at 6.4 per cent.)

“Thousands of entrepreneurial young companies are springing up – and with such a huge and untapped market on their doorstep, the best have extraordinary growth potential. With the Nigerian currency now 14 per cent cheaper against the pound than it was a year ago, the country’s stocks represent exceptional value to investors who are keen to broaden their horizons into frontier markets,” he continued.

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