Finance · 18 January 2017

Seed crowdfunding outperforms government’s Start Up Loans scheme in 2016

Seed crowdfunding on Kickstarter
Platforms such as Kickstarter have helped British businesses access growth capital

New statistics have shown that seed crowdfunding provided 40 per cent more funding to UK businesses in 2016 than the flagship Start Up Loans initiative.

Research from The Crowd Data Center, derived from 500,000 crowdfunded deals, revealed that there were 68 fully-funded crowdfunding projects each day during 2016 – with the average amount raised around £25,000.

“We have defined ‘seed-crowdfunding’ as the use of rewards-based platforms to fund the creation of new businesses, products and services,” said Barry James, CEO of The Crowd Data Center. “Until now, rewards crowdfunding, as it’s often known, has been mostly associated with charitable and community funding.”

The sectors around the world with most funded campaigns included film (3,169), music (3,114), design (2,504), publishing (2,124) and gaming (2,110). The figures, which Business Advice was given exclusive early access to, showed the US is leading the way with 15,515 funded projects.

However, it is the performance when benchmarked against the government’s Start Up Loans scheme that shows the reach of seed-level crowdfunding. Set up in September 2012, the Start Up Loans scheme operates as an independently-managed and government-backed programme – supposed by the British Business Bank (BBB).

“Now we have the full 2016 data this makes possible a direct comparison with Start Up Loans, revealing that businesses are being better funded, and at a lower risk to all involved,” James added.

“What’s more, seed crowdfunding is ready to move out of the early adopter stage so, with the right support, could treble in size and impact over the next two or three years.”

Comparing figures published December 2016 by the Start Up Loans Company revealed that, on average, UK businesses received 40 per cent more funding (£8,729.20) from a seed crowdfund than from a Start Up Loan (£6,246.28). Volumes are comparable, with crowdfunding supporting 66 per cent (5,992) as many venture as Start Up Loans (9,125) in the last year.

The figures attracted attention from MP Barry Sheerman, who chairs the all-parliamentary group supporting the development of crowdfunding through its early stages. “I can tell you that the 2016 data and this finding provide a very significant milestone with profound implications for UK businesses, entrepreneurs and government,” the politician commented.

“Not least because while a huge investment has been made in Start Up Loans, seed crowdfunding has been entirely self funding – and has huge scope for growth across the UK, without burdening taxpayers.”

In September, Business Advice spoke to Tom Putnam, co-founder of cycling navigation device BeeLine. The young business owner decided to use rewards-based seed crowdfunding platform Kickstarter as a way of first funding his enterprise, before then turning to the equity-based offering when more capital was needed.

“We didn’t ever consider not doing reward crowdfunding, as that kind of funding has enabled companies like us to start with nothing,” Putnam added.

“There’s no way we would have got investors to the level we needed, spending that amount of money on something you didn’t even know if the market existed for.”

Have a look at the infographic below for all the headline seed crowdfunding data from 2016
2016_TheCrowdfundingCenter_-_RewardsCrowdfundingInfographic

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ABOUT THE EXPERT

Hunter Ruthven is the editor of Business Advice. He is also the editor of Real Business, the UK's most-read website for entrepreneurs and business leaders at the helm of growing SMEs. Alongside this, he is part of the team that hosts the Growing Business Awards, First Women Awards and Future 50 initiative. Prior to his role at Real Business, he was editor at competitor website Growth Business and head reporter at M&A Deals. Throughout his career he has interviewed leading entrepreneurs including Alex Chesterman, Lopo Champalimaud, Sarah Wood, James Averdeick and Alex Saint.

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