New FCA Rules on Crowdfunding Explained

Equity Investment It’s Your Business

Volpit Limited is an appointed representative of Resolution Compliance Limited which is Authorised and Regulated by the Financial Conduct Authority (FRN: 574048). Volpit Limited is entered on the FCA register under reference 614769. Volpit is a registered trademark (UK Reg. 00003024261) of Volpit Limited, a limited company registered in England and Wales (No. 08323491), with a registered office at 3 Hanson Street, London W1W 6TB, United Kingdom.


Volpit Limited is an appointed representative of Resolution Compliance Limited which is Authorised and Regulated by the Financial Conduct Authority (FRN: 574048). Volpit Limited is entered on the FCA register under reference 614769. Volpit is a registered trademark (UK Reg. 00003024261) of Volpit Limited, a limited company registered in England and Wales (No. 08323491), with a registered office at 3 Hanson Street, London W1W 6TB, United Kingdom.02

Introduction

**Methodology

Welcome to Volpit’s ‘Equity Investment – It’s Your Business’ Report

We know from speaking to investors that the FCA’s new regulations are going to give UK SMEs a major boost, but we wanted to put a figure on it – so we commissioned this report. The reality is, as you’ll go on to read, that over £31 billion could potentially be injected into new UK businesses in the next year.

This report is our way of promoting awareness of the FCA’s new regulation and estimating its potential effect on the UK’s startup ecosystem. We are expecting massive growth of the angel investor market and a lot more startups funded as a result.

The startup trend continues to embrace the UK, with almost 530K startups formed just last year[1] - a five percent rise since 2012 [2]. Seven percent of all new businesses in the UK are owned by those aged

18-30 - a figure that has risen by 45 percent in the last 12 months [3].

Volpit’s mission is to empower passionate entrepreneurs with the tools they need to bring their ideas to life.

The team’s mantra is: ‘anyone can invest in anyone.’ Volpit Team

Equity Investment: It’s Your Business Study was commissioned by Volpit and involved a national omnibus survey of 1,000 employed adults in the UK. The study was carried out between the 5th and 7th March 2014

[1] www.startupbritain.co/startupfigures2013 [2] www.insidestartups.co.uk/blog/the-uk-startup-economy-in-numbers-nov-2012/ [3] www.unltd.org.uk/2013/09/13/populus-survey/


Volpit Limited is an appointed representative of Resolution Compliance Limited which is Authorised and Regulated by the Financial Conduct Authority (FRN: 574048). Volpit Limited is entered on the FCA register under reference 614769. Volpit is a registered trademark (UK Reg. 00003024261) of Volpit Limited, a limited company registered in England and Wales (No. 08323491), with a registered office at 3 Hanson Street, London W1W 6TB, United Kingdom. 03

ForewordI believe that the UK is, beyond doubt, leading the way in alternative funding models for new and young businesses.

We are redefining the landscape for entrepreneurship, with more viable and innovative funding options for startups and growing SMEs than ever before [4]. The formalisation of the new FCA regulation is a big leap forward and I applaud the FCA’s efforts to create a regulated environment in which investors are protected and entrepreneurialism can flourish.

Volpit’s, Equity Investment: It’s your Business report puts the spotlight on equity crowdfunding platforms. This report not only highlights how these platforms are

providing a fundamental solution to a long-standing problem but also quantifies the potential opportunity and the unlocked value. The calculations in this report show that the UK startup ecosystem could benefit from an injection of up to £31.4 billion in the next 12 months through this model alone.

Being in the startup sector for years, it’s evident to me that the entrepreneurial spirit is growing ever stronger in the UK [4] and Volpit are harnessing the desire from entrepreneurs and investors alike. This report highlights just how prevalent that desire is. The way we finance new and young business will change, no doubt about it, so lets embrace it.

Doug Richard, Founder and CEO, School for Startups

by Doug Richard

[4] www.nesta.org.uk/publications/rise-future-finance



What new rules?This month the Financial Conduct Authority (FCA) has introduced a new policy for equity crowdfunding in the UK.

Previously, this equity investment regulation was restrictive and in fact, the FCA stated “Our present rulebook was not designed with crowdfunding in mind, so in this CP we are consulting on a revised approach to regulating firms that operate investment-based crowdfunding platforms or market unlisted equity or debt securities.” [5]

The FCA has over the past few months, formulated an updated approach to regulate this new market in a way that is more inclusive of UK investors. The new regulation allows all UK adults to invest up to 10 percent of their net assets (money that does not affect their house, pension, or life insurance) new or growing business via equity crowdfunding platforms.

During the FCA’s consultation process, although there was an attempt to engage with the public, our study revealed that 88 percent** of all people we surveyed in the UK are still completely unaware of the FCA’s new regulations.

With approximately 50 million adults in the UK, there could be 44 million* people out there who could be investing in new UK businesses.

The FCA’s new rules on crowdfunding represent its first real attempt to give a

framework for how crowdfunding operates in the UK. Although some may view the policies as restrictive, we believe the new framework – both the proposed consumer protection and the clarity provided – will improve the market and add to the momentum being generated in the UK at the moment by Volpit and others.”

Adrian Rainey Partner with Taylor Vinters

Volpit is teaching business owners how to seek investment the easy way.

“It really is a tough job getting investment for your business – we’ve been lucky to secure a third of our seed investment from an angel investor, but it has taken a lot of work to get to this point.

“Entrepreneurs should be well-educated and aware of the all various types, sources and laws of investment. There are so many opportunities out there for startups, but nobody knows about them, and Volpit is teaching business owners how to seek investment the easy way.”

Heidi Lindvall CEO & Co-Founder of Storygami, London

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*figure is based on recent data produced by the Office of National Statistics (ONS) of the total population of adults in the UK

[5] www.fca.org.uk/your-fca/documents/consultation-papers/cp13-13

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How are people currently investing?With interest rates at an all-time-low [6], we wanted to find out where people in the UK are currently investing their hard-earned money...

Bank account (savings) - 40% Property - 22% Stocks and shares - 14% Alternative investments (diamonds, gold etc) - 12% Business investment (equity) - 11%

**The top five cities where people selected bank account savings as their first option for making a return on their investment were:

It’s a brilliant idea.“As an owner of an online community platform, I can relate to the way Volpit works and how vital it is to provide support and service on such a platform, with hundreds of entrepreneurs searching for the same thing.

“A lot of people are wary of equity crowdfunding sites because they feel like it’s a hit and miss game, whereas Volpit ensures that business owners can stay connected with their investors and see what impact the investment makes long-term – it’s a brilliant idea.”

Matt Wilson Co-Founder of EBMdoc, Dorset

Bristol

49%Oxford

49%Newcastle

45%Leicester

44%Edinburgh

44%

[6] www.thisismoney.co.uk/money/news/article-1607881/ When-UK-rates-rise.html



Startup - the Buzz Word

We can’t get through a single day today without hearing about some new, super-smart business that has just secured investment – even in the evening as we tune out from work mode, it’s there on our TV screens in the shape of a finger-wagging Lord Sugar on The Apprentice, or those fire-breathing Dragons in the Den.

Investing in new businesses has hit mainstream media, but what did adults in the UK say when we asked if they themselves had ever invested in a new UK business?**

• 15 percent of people in the UK have invested in a new UK business (7.5 million)

• More than 4 in 5 people in the UK (85 percent) have never invested in a new UK business (42.5 million)

Comparing the market• 19 percent of people aged 18 – 25 have invested in UK SMEs – the highest percentage across all age groups

• 4 out of 5 people aged 24 or older have never invested in a new business

• Only 5 percent more men have invested in UK startups over women (18 percent / 15 percent)

London snapshotOut of all major cities in the UK, 22 percent of people living in London have invested in new businesses.** Everyone knows that London has some of the fastest-growing companies, and the London Evening Standard recently revealed that London’s SMEs show the steepest income rise in the UK, showing a 99 percent increase in revenue over the last few years. [7]

Who said women are more risk-averse than men?

“As a proactive investor, I continuously scan the market for interesting opportunities. In particularly, ideas which leverage market discontinuities – and equity crowdfunding is one of the ways that the best opportunities come around. Platforms such as Volpit bring together such a wide range of opportunities, there’s something for everyone – not just seasoned investors like me.

“Who said women are more risk-averse than men? This study has disproved that, showing that women are just as likely to invest in businesses today. Now that equity investment platforms are more accessible, we’re going to see a significant wave of enterprises popping up all over the UK – how exciting!”

Raoul Oberman Angel Investor

[7] http://www.standard.co.uk/business/business-news/londons- smes-show-steepest-income-rise-in-uk-9192666.html


What difference will it make?

Is this new regulation actually going to make an impact?

We wanted to find out who is willing to invest in new UK businesses now that they know they can.

According to our study, an overwhelming amount of people in the UK are willing to invest in new businesses:

• 40 percent of all people would consider investing in a new business (20 million)

• Almost half (47 percent) of people aged 18 – 24 would invest

**The top five cities where people are most willing to invest in a UK startup are:

Using the Volpit platform gives me the confidence to get my business out there.

“I am glad that the FCA is opening up more opportunities for investment to support new and small businesses in the UK. Sometimes we feel restricted to angel investors, which makes it hard for us financially, so now that we have the chance to pitch to anyone, hopefully it’ll boost the whole economy.

“Using the Volpit platform gives me the confidence to get my business out there and with a strong pitch, I have a better chance at receiving investment. Investors are able to see my ideas clearly and the interactive side of the platform really brings it to life for them to see my business plan in a more exciting way.”

Zoe Bermant CEO & Co-Founder of KiddyUP Ltd, London

London

48%Manchester

47%Birmingham

45%Cardiff

42%Newcastle

43%Equity Investment

It’s Your BusinessVolpit Limited is an appointed representative of Resolution Compliance Limited which is Authorised and Regulated by the Financial Conduct Authority (FRN: 574048). Volpit Limited is entered on the FCA register under reference 614769. Volpit is a registered trademark (UK Reg. 00003024261) of Volpit Limited, a limited company registered in England and Wales (No. 08323491), with a registered office at 3 Hanson Street, London W1W 6TB, United Kingdom. 07



Volpit is designed to create a business ecosystem in the UK, bringing together interested investors with hard-working entrepreneurs to grow together, who will go on to invest in more new businesses.

With almost half of all adults in Britain willing and able to invest in a new business, our study showed what boost Britain’s SME sector can expect:

• 39 percent of UK adults would invest a minimum of £500 (19.5 million / £9.7 billion)

• 29 percent of people would invest over £1,500 (14.5 million / £21.7 billion)

Based on a population of 50 million adults in the UK, these small, but ample investments

could boost UK businesses by £31.4 billion per annum.**

According to data published by The Office for National Statistics in February 2014 [8], business investment rose by an estimated £0.8 billion (2.4 percent) compared with the previous quarter. A year later, business investment rates are 8.5 percent higher compared with Q4 2012, which means that £31.8 billion is currently being invested in new businesses annually. Now, with a potential £31.4 billion to be invested, there could be a significant total of £63.2 billion injected into the UK business hub over the next year.

A recent study [9] reveals that the average investment required to start up a new business is a whopping £93,835. For micro companies,

the average is £41,458, while the founders of small firms need £103,816 investment. For medium-sized companies, £184,500 is the average.

Towards the end of 2013, there were an estimated 4.9 million SMEs in the UK[10] . Our study shows that with 40 percent of people in the UK willing to invest a grand total of £31.4 billion per annum, and the average investment required by startups is £94,000 - a new generation of 330,000 businesses could potentially be created in the next year.

[8] http://www.ons.gov.uk/ons/rel/bus-invest/business-investment/q4-2013-provisional-results/stb-business-investments-q4-2013-provisional.html [9] study conducted by Opinium Research in December 2012 [10] statistics published by Federation of Small Businesses in October

Boosting the UK business hub

Boosting the real economy.“This investment study shows positive figures, estimating the potential of equity crowdfunding in the UK. Volpit and other online platforms are funding businesses, boosting the real economy and opening up opportunities for us all to back companies we believe in.”

Julia Groves, Founder of UK Crowdfunding Association



Before(current investment rates)

Money invested intoUK business hub

£31.8 billion

Number ofSMEs in the UK

4.9 million

Number ofSMEs in the UK

5.2 million

Money invested intoUK business hub

£63.2 billion

After(predicted growth over 2014/2015)


Equity Investment It’s Your Business 09



Justin Nothling Co-Founder of Volpit

Patrick O’Flaherty Co-Founder of Volpit

Simon Oberman Co-Founder of Volpit



About VolpitVolpit is a startup investment platform that aims to connect startups with the right investors by using data and technology.

Volpit was founded by Simon Oberman, Justin Nothling and Patrick O’Flaherty in 2012. It is an Appointed Representative of Resolution Compliance Limited, which is authorised and regulated by the Financial Conduct Authority. (FRN: 574048)

The lightbulb moment came when the team embarked upon a discussion about the lack of effective and supportive platforms when searching for startup funding. A few months later, the Volpit platform began to take shape and in December 2012 the team registered Volpit Limited with Companies House.

Despite their diverse set of backgrounds and skillsets, the team found commonality in their visions of the future as they exchanged and built upon the ideas of one another. The Volpit platform was beta launched in 2012 for testing and became ready for its launch to the public in April 2014

Volpit’s mission is to empower passionate entrepreneurs with the tools they need to bring their ideas to life.

The team’s mantra is: ‘anyone can invest in anyone.’

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Investing in startups involves risks including illiquidity, lack of dividends, loss of investments and dilution, and it should be done only as part of a diversified portfolio.



[email protected]@Volpit

www.volpit.com

New FCA Rules on Crowdfunding Explained

Small Business & Entrepreneurship

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