20 VC FF 022 Crowdfunding Is Here To Stay with Ayan Mitra, Founder & CEO @ Crowdbnk



In this episode of "20 minutes VC," host Harry Stebings interviews Ian Mitra, founder and CEO of Crowdbank, a crowdfunding platform that combines equity and debt investment opportunities in high-growth businesses. Mitra, with a background in technology and experience with major consumer companies, shares insights into the evolution of the crowdfunding sector, the impact of regulatory environments in the US and UK, and the potential collaboration between crowdfunding and traditional VC funding. He highlights the importance of intrinsic valuation for sustainable investor returns and discusses the growth potential of crowdfunding, despite current challenges like market awareness and regulation. Mitra also envisions Crowdbank supporting UK SMEs with significant growth capital annually and touches on the role of technology in creating efficient, transparent financial transactions.

Summary Notes

Introduction to Crowdfunding and Guest Profile

  • Harry Stebings hosts the 20 minutes VC.
  • The episode focuses on early-stage funding, specifically crowdfunding.
  • Guest Ivan Mitra is the founder and CEO of Crowdbank, which offers equity and debt investment opportunities in high-growth businesses.
  • Ivan Mitra has a background in technology, enterprise architecture, and technical management.
  • Prior to Crowdbank, Mitra worked with companies like M.S. Orange and First Direct.
  • Mitra pursued an MBA at London Business School before founding Crowdbank in 2011.

"And joining us today is Iron Mitra, the founder and CEO of Crowdbank, an investment crowdfunding platform that allows you to invest in high growth businesses through both equity and debt."

The quote introduces Ivan Mitra and his platform, Crowdbank, which facilitates investment in businesses via equity and debt, highlighting the episode's focus on crowdfunding.

Ivan Mitra's Path to Founding Crowdbank

  • Ivan Mitra's career began as a software engineer creating Internet banking frameworks.
  • He provided technical consulting to startups.
  • Inspiration for Crowdbank came from observing Kickstarter's launch and the potential for a regulated digital investing platform.

"Well, my background actually is in technology, so I'm a software engineer by trade and I started my career back in the mid 90s, writing the first Internet banking frameworks for a bank or first direct."

This quote outlines Ivan Mitra's technical background and career inception, which laid the foundation for his entry into the startup world and eventually to his creation of Crowdbank.

Crowdfunding in the US vs. the UK

  • Crowdfunding is a broad term encompassing various types, from Kickstarter's pledging model to regulated crowdfunding like Crowdbank and philanthropic capital platforms like Kiva.
  • Crowdfunding and early-stage investing are more popular in the US.
  • The UK leads in regulated crowdfunding growth.
  • The SEC's approval of the Jobs Act signals the mainstream acceptance of alternative finance.

"I think there's three elements to that question, if I may. So I think one is, look, Kickstarter made the concept popular, and obviously, crowdfunding is quite a wide word, and there's many types of it."

Ivan Mitra explains that crowdfunding has several forms and that Kickstarter's popularity helped spread the concept, setting the stage for different crowdfunding models, including regulated platforms like Crowdbank.

Impact of the SEC's Jobs Act on Crowdfunding

  • The Jobs Act is a positive step for crowdfunding despite being diluted from its original proposal.
  • It signals the industry's legitimacy and future mainstream status.
  • The UK's Financial Conduct Authority (FCA) has been proactive in supporting crowdfunding innovation.
  • The UK has been leading in crowdfunding growth compared to the US.

"I think it's a very positive step. Not so much because of what the act actually is, because I think it's been greatly diluted from the original principles of when it was proposed."

Ivan Mitra views the Jobs Act as a positive development for crowdfunding, not for its specifics but for the legitimacy it confers on the alternative finance industry.

Drivers of Crowdfunding's Global Rise

  • Technology has revolutionized various industries, but financial services have seen limited innovation.
  • Crowdfunding represents the first wave of leveraging technology to enhance financial services.
  • The rise of crowdfunding is part of a broader trend of technological disruption in traditional sectors.

"I think my personal opinion on this is if you look at all other industries, you've seen technology come into those industries and change the way the whole ecosystem works."

Ivan Mitra believes that the growth of crowdfunding is driven by the overdue application of technology to the financial services industry, following the pattern of disruption seen in other sectors.

Evolution of Financial Systems and Technology

  • Technology is improving transaction efficiency, transparency, and speed.
  • The 2008 economic crisis accelerated the adoption of new financial technologies.
  • These technological advancements would have occurred regardless of the crisis.

"I think given the fact that there is technology that would make transactions a lot more efficient, transparent, quick, it was a matter of time before something like this happened."

This quote highlights the inevitability of technological advancements in financial systems, emphasizing the role of technology in improving transactional processes.

Overview of Crowdbank

  • Crowdbank raises growth capital for businesses through equity and debt.
  • They conduct due diligence, structure deals, and price them, investing alongside platform investors.
  • Crowdbank's philosophy involves having "skin in the game" to ensure confidence in the deals offered.
  • Equity investments range from half a million to 3 million pounds, with a sweet spot around a million pounds.
  • Debt investments range from 1 to 5 million pounds, with flexibility based on the deal.
  • No technical minimum investment requirement, but significant and diversified investments are recommended, ideally at least 10,000 pounds annually.
  • Investors should be prepared for the potential loss of their investment.

"So, at Crowdbank, we basically look to raise growth capital for businesses through equity and debt. And our core focus is we actively go and due diligence the company, we structure the deal, we price it."

This quote describes Crowdbank's approach to raising capital, emphasizing their active involvement in due diligence, deal structuring, and pricing to ensure responsible investment opportunities.

Valuation Approaches at Crowdbank

  • Valuation is categorized into intrinsic valuation and momentum-based valuation.
  • Intrinsic valuation involves creating value through EBITDA, multiple distribution, and cash flow modeling, discounted for time and risk.
  • Momentum-based valuation depends on what someone is willing to pay for an asset.
  • Crowdbank focuses on intrinsic valuation, especially for early-stage companies, to ensure sustainable investment values.
  • Accurate intrinsic valuation is crucial for early investors to profit, even if the company becomes hugely successful later on.

"Our approach at Crowdbank is we go after intrinsic valuation, because even though it's actually quite difficult sometimes for early stage companies, you may not have all the data at your disposal to be able to come up with something very accurate."

This quote explains Crowdbank's preference for intrinsic valuation to establish sustainable values for investments, acknowledging the challenges but emphasizing the importance of this approach for early-stage companies.

Crowdfunding vs. Traditional VC Funding

  • Crowdfunding platforms like Crowdbank have a sweet spot for investment sizes, which may overlap with traditional VC funding ranges.
  • There is no direct competition between crowdfunding platforms and VCs, as both have important roles in the evolving ecosystem.
  • Early evidence suggests that collaboration between crowdfunding platforms and VCs is beneficial.
  • Institutional investors are favored by both individual investors and VCs for their involvement in funding rounds.
  • Diversifying investor bases can benefit VCs, as seen in collaborations like the Gojimo case with Index Ventures.

"I don't think they are. I think, look, the ecosystem is evolving, and actually there is room and requirement for both types."

This quote expresses the view that crowdfunding platforms and traditional VCs are not in competition but rather are complementary parts of a growing and evolving investment ecosystem.

George Burgess and Gojimo

  • George Burgess is highly regarded by Ivan Mitra for his achievements and potential in the industry.
  • Ivan Mitra personally invests in Gojimo and predicts it could become a unicorn.
  • Gojimo is one of the most exciting companies Ivan Mitra has worked with on the platform.

"I enjoyed working with George. I think he is a hugely impressive young man and I think what he's achieved so far and his growth trajectory in the industry is in. And this is not a recommendation, my personal, me as a personal investor in it, I think that I'm tipping that for your unicorn."

This quote emphasizes Ivan Mitra's personal investment and belief in George Burgess and Gojimo's potential for significant growth, suggesting it could reach unicorn status.

Crowdfunding Platform Success Factors

  • Consumer understanding of a product contributes to crowdfunding success.
  • Easy-to-understand ideas tend to attract retail crowd investment.
  • Sophisticated investors on Ivan Mitra's platform evaluate investments on a case-by-case basis.

"I think there is some evidence to suggest that easy to understand products generally tend to do better in terms of the retail crowd getting involved."

This quote indicates that products that are easily comprehensible to the general public are more likely to succeed in crowdfunding campaigns.

Role of Venture Capitalists (VCs)

  • The complexity of certain investments may necessitate the continued existence of VCs.
  • Big consumer-facing brands have not yet fully adopted crowdfunding but might do so in the future.

"You could say that. But I think for us on our platform, I think we've done some b to b, and our investors generally tend to be sophisticated and they would look at it on an investment by investment basis."

Ivan Mitra acknowledges that while VCs still have a role, his platform accommodates both business-to-business (B2B) and sophisticated investors who assess each investment individually.

Barriers to Mass Market Adoption of Crowdfunding

  • The crowdfunding industry is nascent compared to traditional financial services.
  • Awareness and competition with traditional financial incumbents are significant challenges.
  • Regulation is a double-edged sword, with potential overreaction posing a risk to market accessibility.

"I think awareness is one. And awareness, what I mean by that, is disrupting the traditional incumbents in terms of financial services."

Ivan Mitra identifies awareness as a barrier to crowdfunding's mass market adoption, highlighting the challenge of disrupting established financial institutions.

Potential Impact of a Large Crowdfunding Exit

  • A significant exit could validate crowdfunding and attract more investors.
  • Consumer behavior change is gradual, and education on the risks and opportunities is crucial.
  • The timeline from seed to IPO has increased, delaying the emergence of success stories from crowdfunding.

"I think having a track record will help, and it's very easy. Why it hasn't happened, because on average, from seed to ipo, the tenure of company onto how long it takes has actually gone up."

Ivan Mitra suggests that successful crowdfunding exits take time to materialize due to the lengthening period from a company's seed stage to its IPO. A track record of successful exits will be beneficial for the crowdfunding industry.

Efficiency and Transparency in Direct Investing Platforms

  • Direct investing platforms offer a more cost-effective and efficient way to process transactions across asset classes.
  • These platforms provide value to investors by reducing the fees typically paid to fund managers.
  • Investors who are also fund managers appreciate the efficiency and transparency offered by direct investing platforms.
  • The shift towards direct investing platforms is driven by their ability to distribute value back to investors.

"We are far more efficient in processing transactions of any asset class. Frankly, we happen to be in a sort of early stage growth capital because that's where the funding gap is."

This quote emphasizes the efficiency of direct investing platforms in processing transactions and their focus on early-stage growth capital due to the existing funding gap in that area.

"So I think there's a strong pull because of efficiency and transparency of these investors coming and using direct investing platforms."

The quote highlights the main reasons investors are attracted to direct investing platforms: the efficiency and transparency they offer compared to traditional fund managers.

Intelligent Investing and Influential Books

  • "Intelligent Investing" by Benjamin Graham is highly recommended for understanding investing fundamentals.
  • The book is frequently cited by Warren Buffett, indicating its influence on successful investors.
  • The principles from the book have been applied to the speaker's own investing strategies.

"Well, I have lots of favorite books, but the one that I think I would mention in this context is a very old book by Benjamin Graham called Intelligent Investing."

The speaker regards "Intelligent Investing" as a significant book that has influenced their approach to investing, highlighting its enduring relevance.

Capital Strategy for Startups: War Chest vs. Planned Capital Injections

  • There is no one-size-fits-all answer to whether startups should raise a large war chest or plan for capital injections.
  • The choice depends on the startup's industry, competition, and market conditions.
  • Having a war chest is crucial for competing in certain sectors, like those dominated by companies like Uber.
  • In markets with multiple players and opportunities for better valuations at key stages, planned capital injections may be more advantageous.
  • The speaker suggests raising as much money as possible based on their experience with Crowdbank.

"I don't think there's a zero or one answer. I think it really depends what you're doing as to what your route should be and what the market's doing."

This quote conveys the nuanced approach needed when deciding on a startup's capital strategy, taking into account the specific circumstances of the business and market.

Exciting Companies Funded by Crowdbank

  • Breezy, a company funded in 2014, is notable for its software that simplifies the user interface on Android devices for the older generation.
  • Breezy has seen significant growth in value and team size since Crowdbank's investment.
  • The company has also attracted investment from VC firms in the US and is considered a star in Crowdbank's portfolio.

"There's a company we funded in 2014 called Breezy... they are one of our stars in the portfolio, where I have actually seen the valuation go up."

The speaker shares their excitement about Breezy, a company that has demonstrated substantial growth and success since receiving funding from Crowdbank, showcasing the potential of investments made through the platform.

Favorite Blog or Newsletter

  • Seth Godden's blog is highly regarded for its readability and insights into marketing.
  • The blog delivers "home truths" that resonate with the speaker.

"I really like reading a very short blog that Seth Godden writes. He's a marketeer. It's very readable and very home truth."

The speaker expresses admiration for Seth Godden's blog, suggesting it as a valuable resource for marketing insights and practical wisdom.

Vision for Crowdbank in the Next Five Years

  • The vision for Crowdbank includes supporting UK SMEs with a billion pounds of growth capital annually within the next five years.
  • This goal reflects Crowdbank's commitment to contributing to the growth of small and medium-sized enterprises in the UK.

"Well, our vision at Crowdbank, and kind of my vision is that in the next five years, we'll be supporting UK SMEs, with a billion pounds of growth capital every year."

The speaker outlines an ambitious vision for Crowdbank's future, aiming to significantly increase the support provided to UK SMEs through growth capital.

Crowdbank's Unique Spelling and Promotion

  • It is noted that when visiting the Crowdbank website, one should remember that "bank" does not contain the letter "a."
  • The host promotes the current investment opportunities available on Crowdbank's platform.

"And you can see the current investment opportunities on Crowdbank by heading to www.crowdbank.com. The only thing to remember with Crowdbank, there's no a in bank."

This quote serves as a reminder for the correct spelling of Crowdbank's website, which is essential for accessing their services and investment opportunities.

Point Chrome Plugin

  • The Point Chrome plugin allows for easy sharing and commenting on web pages among friends.
  • The plugin integrates into the browser, facilitating conversations without the need for visiting another site or network.
  • The host invites listeners to join the conversation on the platform and shares contact information for further engagement.

"With the plugin, you can share any page just by at mentioning a friend. A chat dialogue will then pop up in the corner, very similar to a Google chat, and you can comment right there on the article itself."

This quote describes the functionality of the Point Chrome plugin, emphasizing its convenience for sharing and discussing content directly within the browser.

Conclusion and Acknowledgements

  • The host expresses gratitude to the guest for participating in the podcast and sharing valuable insights.
  • A final thanks is extended to the listeners for their support and feedback.

"Thank you, Harry, thank you for the opportunity."

The guest thanks the host for the chance to appear on the podcast, indicating a positive interaction and the value of the platform for sharing expertise.

"What an amazing episode with Iron that was. And a huge thank you to him for giving up his time today to be on the show."

The host concludes the episode by acknowledging the guest's contribution and the valuable discussion that took place during the podcast.

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