Crowdfunding Comes of Age


Julia Groves, Partner and Head of Crowdfunding at Downing Crowd

Crowdfunding is gaining serious traction in the UK market, with the sector pushing past the £10 billion milestone in 2016. While, most people will probably still associate the idea of ‘crowdfunding’ with websites like Kickstarter or early stage equity investments, the reality is that 97% of the market is debt-based – either P2P lending or Crowd Bonds.

Both P2P lending and Crowd Bonds are also making big strides into the mainstream thanks to their inclusion in the new(ish) Innovative Finance ISA (IFISA), which allows investors to earn interest tax free on their investments.

That’s a long way to come in a short space of time.

When the UK Crowdfunding Association was first set up in 2012, our sector was still just a small group of entrepreneurs at the fringes with big ambitions to take on traditional financial services. To achieve this, not only did we have to successfully push for a level playing field on tax and proportionate regulation by lobbying Government, we also had to remove the exclusivity from finance, which effectively flew in the face of the ‘old school’ finance brigade.

Too much of financial services inhibits people from accessing attractive returns unless they are already wealthy. Crowdfunding is not just about raising the money; our success is also measured by the number of people that are able to participate and the transparency we provide as an industry. Essentially, it’s all about enabling people to back the businesses they want to and potentially achieving ‘decent’ returns without having to have many thousands to invest.

Downing LLP entered the crowdfunding space and launched its own online platform offering asset-backed Crowd Bonds to retail investors back in March 2016 and the Innovative Finance ISA in April 2017. Crowd Bonds offered on Downing’s platform allow investors to invest directly in a range of UK companies, secured against the assets of the borrowing company. Terms range from six months to four years and the average weighted interest rate is 5.7% (as at 4 December 2017).

The ambition of Downing Crowd has been to blend the 35-year investment expertise of Downing LLP with crowdfunding. And while relatively new in the world of crowdfunding our platform is already delivering exciting results for investors.

Our first ever Bond, Kenninghall Solar, sold out within 14 days. The £3.2 million one-year renewable energy bond offered 6.25% p.a. (including an early-bird bonus) and the final interest, together with capital repayment was paid in April 2017. Downing Crowd now has 21 Crowd Bonds in total and has raised over £44 million on behalf of small UK businesses (as at January 2018).

But even as both Downing Crowd and the industry goes from strength to strength, there are still plenty of challenges for the sector to overcome, the biggest of which is almost certainly transparency following the FCA’s interim feedback calling for greater disclosure throughout the crowdfunding sector.

Crowdfunding platforms need to be more transparent about fees to start with. An investor should be able to see how the platform gets paid – by the lender, the borrower or both? Investors will naturally focus on the rate of return for lenders but platforms should also be upfront about the rate that the borrower is paying, as this can be a much better indication of the risk profile of that investment than the rate the lender is being offered. Here at Downing, we align ourselves with your interests – our monitoring fee is contingent on you being paid your capital and interest in full.

Improving transparency could also help clear up the lack of understanding that still exists around crowdfunding, despite its growing popularity. For instance, we keep seeing and hearing the IFISA being referred to as the “P2P ISA”, which is technically incorrect given that the IFISA can also hold Crowd Bonds too. This may all just seem like technical jargon but there are key differences between P2P and Crowd Bonds which actually mean that one IFISA investment can vary greatly from the next.

Transparency is the key that has the potential to help the industry scale up and continue to attract more mainstream investors.  At Downing, we are focused on helping investors understand the risks by carrying out thorough due diligence and publishing full offer documents so that all investors can get a true feel sense of how the investee company has been researched and assessed before making any informed investment decision.

About Downing Crowd

Downing Crowd was launched in March 2016 by Downing LLP, a business with 25 years’ investment management experience. We provide opportunities to lend to established businesses with tangible assets, predominantly those that Downing knows well and has worked with for many years. We don’t work with early-stage businesses that require equity investment: instead you are providing a loan in the form of a security. Our bonds offer a fixed rate of return of between 4% p.a. – 7% p.a. Since we launched our first Bond, we have raised more than £44 million across 21 Bonds to support smaller UK businesses across a variety of sectors. In doing so, we have provided investors a 5.7% weighted average return (as at 4 December 2017).

Downing Crowd was recently awarded Best Investment Platform at the 2017 Growth Investor Awards, November 2017.

If you would like more information on Downing Crowd, our Crowd Bonds or the Downing IFISA, please visit our website You can register to become a member to stay up to date with our latest Crowd Bonds.

Disclaimer – Capital and returns are not guaranteed. Past performance is not an indicator of future performance. Any personal opinions expressed are subject to change and should not be recommended as investment advice or a recommendation.

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