IFISA first-mover Crowd2Fund kicks off £30m fundraise, eyes £1bn valuation by 2022

By Ryan Weeks on Monday 8 January 2018

Alternative Lending

The company’s lenders have already invested £1.5m in an overfunded offering.

The company’s lenders have already invested £1.5m in an overfunded offering.

Crowd2Fund has embarked on an ambitious series of fundraises that it hopes will see £30m raised within the next 24 months.

The peer-to-peer lender, one of the first to launch an Innovative Finance ISA, has already raised £1.5m from 113 of its own investors (all of whom are either sophisticated or high net worth individuals). More shares were made available after demand exceeded the initial target of £1m. These investors have bought shares in the company at a valuation of £33m. The capital is being raised through Crowd2Fund’s platform.

The £1.5m sum is part of a £10m tranche. The plan is that the balance will be made up by venture capital and institutional investors. Responding to questioning from AltFi, CEO Chris Hancock (pictured) told AltFi that these institutions “will be investing on the same terms [as individuals] if not less generous depending on when the round closes”.

The company anticipates securing the remaining £20m (of the planned £30m fundraise) in January 2019.

The webpage dedicated to the fundraise tells prospective backers that the investment opportunity “is forecast to yield a 24 times investment return by 2022 after the company exits to a larger institution or floats on AIM”. This is based on the assumption that Crowd2Fund is able to capture 33 per cent market share in the peer-to-business lending space – and a £1bn valuation to boot – by 2022.

Individuals were offered rewards (in addition to shares in the company) for participation in the £1.5m fundraise. For an investment of £100,000-£1,000,000, for example, an investor could have become an advisory board member. At the current valuation, an investment of £100,000 equates to a 0.3 per cent stake in the company.

Crowd2Fund’s intentions for the £1.5m that has already been raised are laid out in explicit detail on the campaign page. “Direct Sales” and “Media” will eat up the lion’s share of the proceeds, allocated exactly “£593,800” and “£432,500” respectively. Money has also been set aside for the platform’s planned international expansion to the US and South-East Asia (£150,000 for the former, £50,000 for the latter).

Hancock explained the rationale behind the aggressive expansion plan: “The internet is global and there is significant opportunity overseas, especially with the FinTech bridge which allows UK FCA regulated firms to passport into multiple markets including Singapore and Australia in Southeast Asia. We are currently going through the approval process for these markets.”

Crowd2Fund is eyeing an exit before 2022, either through a floatation on AIM or through a trade sale. Were the business to be sold, Hancock says that he could see “a bank or a large media company looking to enter the fintech market” as potential buyers.

The financial projections and valuation metrics used by Crowd2Fund will be a key point of focus for investors. Asked how the 33 per cent market share and £1bn valuation figures were reached, Hancock explained: “There is one main peer-to-business platform in the UK facilitating approximately 87 per cent of transactions [Funding Circle] and we believe there is room for another platform with a different proposition and therefore feel it is not unreasonable to aim to seize a third of the UK market share over the next few years. The £1bn valuation is based on a revenue multiplier model and is based on forecast market and revenue growth. If the market grows by 46 per cent CAGR, which some people are estimating, the market size will be £8.2bn by 2022 and therefore only 7.2 per cent of market share is required to hit targets.”

Asked how he plans to acquire market share, Hancock outlined what he sees as a key selling point for the platform: “We allow investors to choose the businesses to invest in and leverage the relationship between businesses and investors.” 

Funding Circle stopped allowing its investors to bid on loans manually in August 2017, and now shepherds all investors into one of two automated investment accounts. 

Crowd2Fund hopes to cut its operating costs through the application of automation and artificial intelligence, and hopes to see revenues of £11m by 2019. Around £15m has been lent to over 200 businesses via the Crowd2Fund platform to date. For context, Funding Circle has lent a little over £3.11bn to date, according to volume metrics verified by AltFi Data.

Crowd2Fund launched in 2014 and spent 18 months in a commissioning and test period. During this period it became one of the first companies to be directly regulated by the FCA, as well as one of the first to offer the Innovative Finance ISA to investors.

The company opened to the global investor community in 2016, allowing investors from 163 markets around the world to invest in British businesses. It claims to have generated “an average 8.7 per cent APR return for investors before fees and bad debt”. It further claims “no formal defaults after more than 3 years of trading”, but admits to having “a handful of loans in arrears”, while noting that it has successfully recovered 100 per cent of funds from late loans so far.

The campaign page, which includes a large section dedicated to Q&A, may be accessed here

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