If you are looking to further explore the world of investing through Crowdcube, we have compiled a list of five more frequently asked questions. We have put together more detailed information on diversification, how to make a return and what happens once you become share or bond holders.
In case you missed our first blog post on popular FAQs, take a look here.
Does overfunding affect the amount of equity available to the crowd?
Once a pitch reaches its funding target it may choose to ‘overfund’, enabling the company to accept more investment in exchange for releasing more equity. Investments made during this time have the same rights as those made before.
To explain how overfunding affects the equity available to the crowd, a company that initially offered 10% equity in exchange for an initial funding target of £100,000 will need to release more equity as follows:
What happens after the share certificates have been issued?
Once the investment round for a pitch has been captured and share issues complete, we advise all businesses to keep investors updated regularly on the company’s progress. Usually, this will be a short quarterly update and a larger annual update. Crowdcube also regularly posts company news from the Funded Club via the blog and social channels.
The business you have invested in is responsible for delivering any rewards offered. These can only be claimed once the pitch has closed to further funding, and share certificates have been issued.
The bond interest payment schedule varies according to the company and is set out on each bond’s pitch page, or in the bond Invitation Document if it has one. It is important to carefully read the pitch page or Invitation Document to understand what each bond is offering. Normally, but not always, bonds make interest payments quarterly or biannually, and are managed through the Crowdcube platform.
You will be asked to enter bank account details into your Crowdcube account before each interest payment date.
How do I diversify my portfolio?
According to Nesta, diversification should be considered when making an investment. Diversification involves spreading your money across various kinds of investments, with the aim of reducing your overall risk.
Having a diversified portfolio means that even if a few of your investments are successful, they may deliver a large enough return to cushion potential losses. Since we started, less than 7% of businesses to fund on Crowdcube have failed, demonstrating the sophistication of our crowd.
Over 300 businesses have successfully raised finance on Crowdcube, ranging from technology to food and drink, which means that you have the opportunity to diversify your portfolio across a variety of sectors and growth stages. Also, as the minimum investment is only £10, it is feasible to invest in a variety of businesses, no matter how much you are prepared to invest overall.
Find out more about diversifying your portfolio here.
Can I sell or transfer my shares or bonds?
Equity shares: if and how you can transfer your shares depends on the company’s Articles of Association and the type of shares you hold, so it is important to understand the class of shares you will receive by checking the pitch page and reading the company’s Articles upon making an investment. Most crowdfunded companies are private and early stage, so there is a chance you may not be able to sell your shares due to a lack of liquidity.
A company’s Articles often require investors wanting to transfer their shares offer, to existing shareholders first. This pre-emption procedure varies between companies, so please read the Articles and contact the company directly, or email [email protected] if you have further questions.
If a company chooses to adopt the Crowdcube Articles, An Ordinary Shares will have pre-emption rights, but B Investment Shares will not. As an A Shareholder, if you want to transfer your shares you must first offer them to holders of the same shares. B Shares are freely transferable, so you can transfer these shares without first complying with the pre-emption procedure, as long as you wish to transfer all shares to a single third party.
Crowdcube does not provide legal or investment advice, so if you are in any doubt about the pre-emption rights or any provisions of the Articles, you should seek independent legal advice.
Bonds: in most instances, they will be transferable from the first anniversary of the Commencement Date. However, please refer to the specific bond Instrument for further details. Please note that rewards are non-transferable, and are only applicable to the original bondholder. If an original bondholder transfers their bond, they will still be entitled to their reward.
How do I make a return on my investment?
You can receive a return on your equity investment if the company you have invested in makes an 'exit' in the future, including a trade sale, IPO or share buyback. These will vary for each company, so look at the exit strategy on their pitch page. E-Car Club, which raised on Crowdcube in 2012, had the world’s first successful crowdfunding exit, giving their 63 investors a multiple return on their investment, you can read more about this achievement here.
Camden Town Brewery, which raised £2,750,000 in April this year thanks to 2,173 Crowdcube investors, also announced that it had been acquired and successfully made an exit. The company was acquired by AB InBev, the largest brewer, and one of the largest companies in the world - with 25% market share. The sale will deliver a multiple return to its investors and pave the way for further growth and expansion.
A bond is a form of debt finance where you lend money to a business at a fixed rate of interest. The interest on the investment is paid back at regular intervals for the duration of the bond. Once the bond term has expired your original investment is paid back to you in full. River cottage and Chilango were some of the first businesses to start paying investor’s interest after the world’s first crowdfunded bonds launched on Crowdcube in 2014. You can read more about this here.
If you would like to get started and make an investment in a live pitch, visit the latest opportunities today.