Playing at Angels and Dragons

I invested in a start-up company making foldable electric bikes last week.  I have discovered crowd investing.

In particular, I have discovered Crowdcube.  Like other crowd investing sites, entrepreneurs and small businesses pitch their proposals for investment in start-up or early stage companies.  Investors can commit what we can afford to risk, even from as little as £10 in some cases, into the investment pool.  If the funding target is reached, we pay the money committed and become a shareholder in the business.

Up to now, you had to have a serious amount of money to find and fund start-up businesses: they simply weren't readily available to “ordinary” investors in way which allowed you to spread risk and access a reasonable number of opportunities at a low management cost.  Going online has changed that but, although I am taking advantage of it, it isn't the aspect which is grabbing my attention at the moment.  It is the nature of the pitches and the interaction available on the sites.

I am excited at what we can do with Crowdcube and such on our business courses.  The company pitches are like an unedited Dragons Den with little videos, a narrative explanation and profiles of the team together with the financial forecasts and business plans.  And, of course, there’s a completely open decision available on whether or not you choose to invest.  No right answers – the Dragons aren't in or out at the end of the programme – but a real live business to assess and an investment decision to make.  In the nature of start-up businesses, it is a while before you know for sure whether you have made a sound decision but you know within 60 or 90 days whether other investors shared your view and have funded the business or not.

One of the things Crowdcube shows is that Dragons Den probably does not have to search out people who are prepared to go on national television with bags of confidence but no clue.  It is clear that the business world is full of them.  All the Dragons’ reasons to declare “I’m out” and walk away from investment are on Crowdcube: the loopy idea, the good idea with no business sense attached, the sound but uninvestable business and the sound business at a ridiculous valuation.

Of course, I can be totally confident in my ability to identify all these as I may never know the fortunes of companies I don’t invest in but there are aids to forming these judgments.  As ever with online activities, it is the interaction which enhances the experience and, in this case, reduces the risk somewhat for a relatively inexperienced investor.  The Q&A section on each pitch is the place to find the questions of seasoned investors and of experts in the market or technology the company is involved in, open and shared with everyone along with the replies.

On the basis of all this the crowd makes its decision.  It seems to me that pitches rarely fail by a little bit.  Sometimes pitches have extended time to achieve the target if there seems some momentum behind them but most failures fall short by a big margin: there is a collective decision that something really isn't viable.

Crowds can be wrong too, of course, and this remains a risky form of investment but for those of us who are only dabbling, there seems to be some safety in numbers.  And it means that even though I’m not rich enough, tall enough or savvy enough to be Peter Jones, I too can be a Dragon in my spare time.

About the Author: Elizabeth Parkin
Elizabeth had a 25 year career in management before joining the University seven years ago as Manager for “Pod” Programmes. She also held the post of MBA Academic Director before moving on to becoming Head of Department for Management and Business Systems.