Investors turning to crowdfunding for financial support

CROWDFUNDING is increasingly being turned to as an avenue of funding for start-up companies. Ian Briggs reports on those aiming to make Yorkshire a key centre for the sector’s growth.

DANIEL Rajkumar isn’t the first person – and he certainly won’t be the last – to express apathy with the banking sector.

But perhaps unlike some of his compatriots, the Leeds University graduate is doing something about what he perceives to be limited lending opportunities through traditional channels.

Mr Rajkumar has launched rebuildingsociety.com, a website that he claims will enable small businesses to access the finance they need and give savers better returns.

“We’re finding that people don’t have the appetite to borrow like they used to,” he said. “It’s like they feel separated from the institutions around them. Consequently, entrepreneurs have become risk averse.”

His website, which has recently undegone a ‘soft launch’, has so far signed up four early stage ventures and aims to register further operations going forward.

These include Skinkind, a cosmetics business, as well as a recruitment agency and digital media company.

Rebuildingsociety.com encourages potential investors and borrowers to register on its website. Lenders can loan from as little as £10 and businesses can borrow a minimum of £2,000 ranging to a maximum of £50,000. However, lenders are being encouraged not to part with more than 5% of their committed capital to any one business.

There is no pressure for lenders to part with their cash if they don’t feel the opportunity is right, Mr Rajkumar said.

Mr Rajkumar (pictured left) said he wanted to encourage people to lend money to local enterprises – both start-ups and established business – which he said in turn would engender a feeling of loyalty and make it more likely for an investor to use the borrower’s services.

Peer to peer lending, including crowdfunding, is growing in popularity as individuals, disenfranchised by the economic landscape, look to support a variety of activities including political campaigns and scientific research.

In the United States, the industry is valued at around $1.7bn and rebuildingsociety.com is aiming to attract venture capital investment once firmly established.

TheBusinessDesk.com reported last week how Leeds-based qualified accountant Anthony Hall has turned to crowdfunding website Crowdcube to raise £150,000 to fund a series of cartoons he has created.

Mr Hall said: “Crowdfunding is gaining momentum in the UK and so far we’ve had interest not just from here but all over the globe.”

However Gary Lumby, the former Yorkshire Bank director who is working with Mr Rajkumar to build up the business, sounded a note of caution about the concept.

Asked whether crowdfunding could replace the banking system, he said: “People expect crowdfunding to be the next big thing overnight. But it took the internet about 20 years to get where it is today and it will take crowdfunding about 20 years.”