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Crowdcube's Q2 2020 Shareholder Update

By Darren Westlake, Founder & CEO. 31st Jul 2020

Shareholder update Q2 2020

We’ve remained doggedly focused on how we can support entrepreneurs of ambitious startup, early and growth-stage businesses during this outbreak. As per my last update, I’m keeping things simple with a straightforward email rather than distracting the team by getting them to create a glossy PDF.

Platform performance

As you know, March and April were particularly difficult times as founders we’d been speaking to prior to lockdown, rightfully, diverted their attention towards navigating the immediate threats from Covid-19 to their businesses. As you would expect, this resulted in a gradual decline in launches, funding and investment. However, we quickly realised that when businesses did launch with us, their community and ours invariably rallied around them, stepped forward and invested.

Chip, which raised £2.5m from over 4,000 people in April and Freetrade who topped £7m from over 8,500 people in just five days in May, were beacons of light during the darkest moments of lockdown. Simon and Adam, the founders of Chip and Freetrade, deserve a huge amount of respect for their courage to fundraise at this time. However, it would be remiss of me not to also acknowledge the huge team effort from Crowdcube to ensure these raises went smoothly despite levels of demand we’ve rarely seen on the platform.

We have funded more than 98 businesses since the Covid-19 outbreak started to accelerate in March, with 85 funded during ‘lockdown’, which is a tribute to the tenacity and courage of all the entrepreneurs we work with and our conviction to support them through these difficult times.

59 businesses funded in Q2, an increase of 9% compared to Q1 and 16% uptick compared to the same period in 2019. The amount invested also increased 25% versus the first quarter. However, it did decline, along with average funding targets for campaigns and consequently revenue, when compared to last year. Nonetheless, I feel this still represents a good outcome given the circumstances.

We recorded over 50,000 investments during the period, which again marked an increase versus Q1 and year-on-year. This was largely driven by seven popular campaigns that raised over £1 million, including Clim8, Chip, True Royalty Television, Freetrade, Coconut, Callaly and Alpkit. Our proposition to help companies convert their communities into shareholders continues to resonate strongly with more established brands looking to build community and drive customer engagement, loyalty and advocacy.

Financial performance

As you would expect, the impact of the pandemic took a big toll on our financial performance. At the beginning of the year, we were aiming to continue growing our quarterly revenue throughout 2020. However, we ended up significantly lower than our original target and recorded £1.2m in Q2, down 37% compared to the same period last year. That means that we’ve closed the first half of 2020 on £3m in revenue, which was below the £3.7m we achieved in the same period of 2019. This is heartbreaking to see given the huge efforts the whole team have put into the business over the last few years that delivered significant growth year on year.

As mentioned in the Q1 update, to counter this drop in revenue we’ve worked really hard to reduce costs throughout the crisis, which we estimate will have the potential to save us approaching £3m for the year.

Alongside the members of the team who were placed on furlough leave, we also saved additional money when the rest of the team followed myself and Luke by taking a 20% pay cut during May and June. Recruitment and paid marketing activity remains paused, and we let the lease for our London office expire in June, as we didn’t know when things would return to normal, and we believe the office rental market will favour businesses for some time. The London-based team have proven they can work effectively remotely and will continue to do so until we secure new offices.

Financial Accounts for the year ending Sept 2019

Our Financial Accounts for the year ending Sept 2019 were recently published and are available for you to view on Companies House.

In summary, during the year, we worked extremely hard to deliver a 13% increase in funded companies and also introduced new fees while maintaining a relatively stable cost base. This resulted in a 46% increase in revenue to £7.7m and a 13% decrease in operating losses to £2.47m for the year ending 30 September 2019. We closed the year with £7.7m in the bank following a successful fundraise at the end of 2018 and were set to invest in our team and product in 2020 to continue that growth.

Alas, a global health pandemic did not feature in our list of 'principal risks and uncertainties', and the financial fallout has certainly cast a long shadow over a set of results that should have been cause for optimism following year-on-year growth and careful management of our cost base.

Team

My team continues to impress me during these difficult times. They have risen to the challenge and worked hard to ensure we navigate the fallout from Covid-19 successfully. We’re delighted to have welcomed back some members of the team who were placed on furlough leave. The roles that have returned have typically been linked to a gradual increase in demand.

I’m pleased to report that 95% of the team said they have had a positive or neutral experience working from home during lockdown, with almost three quarters saying that they feel as productive, if not more so, at home. This is testament to our culture, and the systems and processes we have in place to make homeworking a good experience. These insights are very encouraging and will certainly help inform how we adjust to the ‘new normal’. We’ve begun the process of considering how we reopen the offices as we look to return some sense of normality. However, we’ll only do so once we’re confident it is safe for the team, which remains our top priority.

Finally, I’m sure you’re all aware of the death of George Floyd in the US and the resultant demonstrations. Crowdcube was borne out of a desire to create fairness, democracy and accessibility. We’re proud to have taken something - investment - that was historically restricted almost exclusively to white, wealthy men and opened it up for anyone, regardless of their ethnicity, gender, age or background, enabling them to invest and become a shareholder in a business they believe in. However, we can certainly do better. Consequently, we held internal workshops for the team to share knowledge, experiences and discuss the issues around racial inequality in today’s society. We also wanted to look at ways we can support more black, Asian and minority ethnic (BAME) entrepreneurs to fundraise with us. There will be more to follow on this subject once we’ve confirmed our plans.

Product & Customer Experience

We’ve continued to make product and user improvements throughout the lockdown. We fast-tracked the launch of a convertible note product to give businesses greater flexibility during these unsettled times. Polysolar became the first business to raise investment using the new convertible product and initial feedback has been positive with over 1,000 people backing their campaign.

We upgraded to a new version of Salesforce, which was a significant project that touched almost every area of the business. It is already delivering positive results in terms of efficiency, productivity and improving our customer and partner experience. We’ve also updated how we categorise businesses, that will enable better search capabilities in the future. We have also updated our proposition, both online and with our business development team, to make it more relevant and compelling for the different audiences we serve; startup, early-stage and growth businesses.

You may remember that in 2019 a campaign by Freetrade caused our platform some issues. With the much-lauded fintech returning to Crowdcube this May, and with a material growth in their customer base, we were determined that it would run smoothly. I’m pleased that following improvements to our technology since last year and thanks to the diligence, dedication and commitment of our team, Freetrade’s raise went smoothly even with some of the highest levels of demand we’ve witnessed at Crowdcube.

We’ve also made several improvements to our investors' experience of Crowdcube. Following direct feedback, we’ve added new fields, including share issue date, share price, company status and Companies House number, to an investor’s CSV download that can be found in the Portfolio section of the website. We’ve also improved the ‘logged out’ pitch page to make it more user friendly, added FAQs to pitch pages (if required), redesigned the registration flow to collect more data that will improve the efficiency of our anti-money laundering processes and, finally, we outlined what the next steps are after people make an investment to improve people’s understanding of our process.

Challenges

Despite having some successes since March, indecision from entrepreneurs remains a challenge as many continue to be nervous of committing to launching a campaign.

Continued economic uncertainty and the threat of a second wave, or waves, still weigh heavily on my mind. However, I remain upbeat that our team, planning and focus on maximising revenue and cost efficiencies will ensure we navigate this crisis safely.

Finally, you may have followed Moneybox’s successful raise this week. Moneybox, who is on a mission to get everyone to save and invest, raised £7m from over 16,700 people to become the second most popular campaign ever with Crowdcube. We’re also excited that what3words, an app that can save your life, is coming soon to Crowdcube. Millions of people from 193 countries are using what3words’ ingenious 3 word addresses to direct emergency services to a precise location, navigate their car to that tucked away cottage and get deliveries to the right place. You can find out more and pre-register your interest with what3words here.

I’d like to thank you for all your messages of support during these difficult times. The whole team continues to work hard to support entrepreneurs, investors and ensure Crowdcube emerges stronger.

Risk warning

Investing in start-ups and early stage businesses involves risks, including illiquidity, lack of dividends, loss of investment and dilution, and it should be done only as part of a diversified portfolio. Crowdcube is targeted exclusively at investors who are sufficiently sophisticated to understand these risks and make their own investment decisions. You will only be able to invest via Crowdcube once you are registered as sufficiently sophisticated. Please click here to read the full Risk Warning.

This page is approved as a financial promotion by Crowdcube Capital Limited, which is authorised and regulated by the Financial Conduct Authority. Pitches for investment are not offers to the public and investments can only be made by members of crowdcube.com on the basis of information provided in the pitches by the companies concerned.