The face of Finance needs a facelift – a decade of derivatives and destructive lending practices is starting to show, the wrinkles have set in. With the Big Bank bubble on the verge of bursting and the guise of free-market capitalism being exposed, the stage is set for a seismic shift to a new financial ecosystem. What better backdrop for such a shift to occur than the City, London, where a new set of players are working together to put a new face on capitalism and bring finance back to the people it was invented for, the crowds.

The City, a nickname given to London for its investment-banking roots, along with New York, have been the undisputed heavyweights of high-finance for much of modern history. During the last decade, when credit derivatives and low-interest loans became the fad, the two started scrapping for high-finance supremacy, Wall Street versus the City. While Wall Street employed it’s own strategy of deregulation, another story in and of itself, the brainpower behind London’s banking system decided on a strategy known as ‘light-touch regulation,’ a green light for bankers to ply their trade in whatever way they saw fit. Well a few bank collapses and several catastrophes later (ie. the LIBOR scandal), The City is falling to pieces.

But one man’s wreckage is another man’s opportunity – with a Crisis that has sent shockwaves through the global financial system far from being over – the time for a new system has arrived. Now, a new set of players are looking to unleash a new wave of finance, through the legalization of crowdinvestment, to counteract the mess left by the bankers. While the US gets ready to open the doors for their own set of crowdinvestment platforms through the JOBS Act, London already has a few of its own in operation and is looking to lead the charge towards the development of a new financial ecosystem.

Earlier this year, Joel took a trip to The City to learn more about the action. He got a first-hand glimpse at the excitement surrounding the early-stage developments and had a chance to chat with a few of the people working to make it happen. His blog (link below) walked through a few of the key initiatives being undertaken to build an open, transparent, web-based ecosystem – referred to as Finance 2.0 – and shed light on the new opportunities that lay ahead.

+ Finance 2.0 – Wall Street Meets the Web

Since that time, a lot has happened. The following is an update of a few of the developments surrounding the key players and initiatives in London’s crowd-finance ecosystem:



Seedrs was not the first crowdinvestment platform (where entrepreneurs can raise capital in exchange for equity online) to launch in London, Crowdcube takes that honor, but it was the first regulator-approved crowdinvestment platform in the world. The difference between the two is that Crowdcube operates using a legal loophole, while Seedrs worked with the FSA (Financial Services Authority) directly to get the regulatory stamp of approval. The result is that Seedrs is a tighter platform, one that is really well thought through on all different levels.

Joel learned that from chatting with Seedrs that the biggest risk surrounding crowdinvestment is not, contrary to popular belief, scam artists defrauding investors, but companies who raise capital and then proceed to dilute out (or screw over) their crowd during the next round of financing. Nobody wants to miss out on the next Facebook, so to counteract this risk, Seedrs has put in several mechanisms to protect its shareholders:

  • primarily, they act as the legal shareholder on behalf of the crowd; they continue to work with and monitor the company’s progress after they have been crowd-financed;
  • secondly, their business model incentivizes them to monitor the companies who are funded on their platform; in addition to taking a percentage of funds raised (7.5%), Seedrs also take 7.5% of the crowd’s equity (the investors) in the company;
  • thirdly, they have designed the platform in way that makes it very clear to people about the risks of investing; they include questions about experience and income, a clever questionnaire where one wrong answer will render you unable to invest, and educational content to help investors better understand the process.

Companies can only raise up to £150,000 and everyday investors, who can invest as little as £10, are limited based on their income to how much they can invest. The platform is brilliantly designed and their collaboration with the FSA has earned them a lot of credibility with both investors and entrepreneurs. Additionally, they won the London Web Summit in March, which helped them add more financial backing to their efforts.

During Joel’s trip in May, they were putting together the final details and getting ready to launch to the public in the summer.


Seedrs launched publically in early July of this year. In the roughly three months they have been in existence, six startups have been funded for a total of £207,500, an impressive start. Crowdfunding platforms take awhile to get going, which is why they require a lot of investment in the early stages, but if they reach critical mass, the growth is explosive.

The company has also implemented several design features and new investment guidelines to help reduce the friction for seed-stage companies:

The company has been active on a number of fronts and is setting an example for others around the world who want to see how crowdinvestment platforms should be operated.

SEIS – Seed Enterprise Investment Scheme

Last year in November, George Osborne, a British MP, signed SEIS (Seed Enterprise Investment Scheme) into law, giving investors in early-stage companies a 78% tax relief.

The SEIS program, which kicked off in April of this year, offers an instant 50% tax credit on any investment made into a seed-stage company, while the remaining 28% is applied on capital gains over a three-year period.

+ FT – 78% tax relief lures startup investors

To be investable, companies must be less than two-years old with less than £200,000 in assets, and investors are limited to investing £100,000 per year and they can’t invest in a relative’s business.


According to the Seedrs CEO, the biggest flaw with SEIS is that ‘it has been kept a virtual secret.’ Former Dragon’s Den investor and Startup School founder Doug Richard believes the program has the ‘potential to be transformative.’

+ FT – Seis has ‘potential to be transformative’

Both parties have teamed up to deliver their message to the UK public. Jeff Lynn, Doug Richard and a few other crowd-finance leaders are on the road to promote SEIS, educate the public about crowdinvesment and discuss alternatives to bank loans through their Windows of Opportunity workshop. The program will roll through nine cities in the UK until the end of November.

+ School for Startups – Windows of Opportunity

Any government looking for ways to spur entrepreneurship at the seed level should be studying this new program in depth.

Bank to the Future


Back in May, in London, Joel attended a crowdfunding event as part Finance 4 StartUp Britain Week. One of the speakers at the event was Simon Dixon), a former entrepreneur, financier and author, who is the force behind Bank to The Future.

Bank to the Future was developed to offer small companies and entrepreneurs the chance to raise capital using a mix of debt and equity – crowdfunding, crowdinvesment or crowdlending – in the same way an investment bank would. The platform seeks to fill the voids left by the banks and the financial sector.

The Bank-to-the-Future model, while different than that of Seedrs, employs the same principles of crowd finance. The site claims to be the first (and only) place in the world where entrepreneurs can raise and manage multiple fundraising cycles through the same platform. Whereas Seedrs is focused on the seed stage, Bank to the Future wants to work with the company through their lifecycle to raise capital. Additionally, they have created a new metric, called the Social Capital score, to help assess the creditworthiness of fundraisers.


Bank to the Future launched in September. In addition to founder’s capital, they raised £150,000 through the crowd.

They now have several fundraising campaigns live on the site, although they are all using the traditional reward-based crowdfunding system. It appears they do not have FSA approval to launch the crowdinvesting side of their business and we are not sure where the company sits in the regulatory framework. The FSA made a statement in August, that essentially said crowdinvesting presents a great risk to all but the most sophisticated investors, which has left many, including Bank to the Future, uncertain about how regulation will play out.

As the interview (embedded above) shows, Bank to the Future is serious about helping UK entrepreneurs of the future get the funding they need now. With banks not lending and a capital system in chaos, the hybrid platform (mix of crowd funding, lending and investing) could be a blessing for businesses trying to raise funds.

And its not only small businesses and entrepreneurs who are taking notice. Serial entrepreneur and global celebrity Richard Branson has publically pledged his support for the company, and shortlisted it in his ‘Screw Business as Usual’ competition for innovative business models.

+ Richard Branson backs Bank to the Future

Eventually, the CEO wants Bank to the Future to become a full ‘entrepreneurs bank,’ and allow its investors to invest in a portfolio of companies.

The Future of Finance …

The UK is making strides to rebuild their financial system; a fluid, transparent and open ecosystem driven by collective intelligence and democratic principles is ready to replace a corrupt system built in the post-war era. It takes the collaborative efforts of players at all levels – government, private enterprise, non-profit, etc – to create a new ecosystem, and it needs to be done carefully to avoid creating similar problems to those that lead to the crisis. As illustrated by companies like Seedrs and programs like SEIS, however, many positive steps have already been made.

A host of other nations, including the UK’s neighbor across the Atlantic, are also taking steps in this direction. The US, is set to launch its own wave of Main-Street financing alternatives on the back of the JOBS Act; projected launch date is January. 2013 is shaping up to be the grand opening for the global crowdinvestment ecosystem.

Overall, the future of finance will be built around the crowds. Rather than the few dictating the decisions of the many, the crowd-finance wave will democratize the financial ecosystem and catalzye a new generation of global entrepreneurs. While many hurdles still stand in the way, the demand is huge and the trend is clear – the new era of finance has begun.

+ Time For BMi

PLAN – the Business Model

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