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November 30, 2012

Crowdcube uncovers the motivations of crowdfunding investors

A good idea, a potential market and an experienced entrepreneur — these are the main ingredients that investors are looking for when they back a new enterprise via crowdfunding.

According to new research by the crowdfunding platform CrowdCube, there is a growing desire for many investors to fund start-ups as a way of showing support for businesses that they feel passionate about. The majority (two thirds) of those interviewed specifically mentioned being “personally moved by the idea” of the business as the leading factor when evaluating a venture for potential investment.

Nearly half (45%) of investors said they liked investing in businesses that interested them personally and many also stated that the process of investment was enjoyable. Some interviewees indicated that they felt it was important for people beyond the very wealthy to have the opportunity to fund small businesses.

The survey also showed the levels of investment that people typically make.

A quarter of people (26%) invest between £1,000 and £4,999, 21% invest between £100 and £499, 17% invest less than £100, 15% invest between £500 and £999, and 14% invest between £5,000 and £9,999. Just 9% invest more than £10,000.

The survey also found that crowdfunding investors often exhibit similar entrepreneurial characteristics to those they invest in. To mitigate financial risk, investors said they limited the amount of money they were willing to invest and also performed due diligence prior to investment. More than half (51%) of the investors surveyed had no formal expectations or strategy for investing, but wait for opportunities that move them.

Luke Lang, co-founder of Crowdcube said: “It is encouraging that the findings highlighted a high level of risk awareness and sophistication among investors; debunking the view that investing should be the preserve of the wealthy or experienced angel investors. The new breed of ‘armchair dragons’ say that crowdfunding gives them a meaningful way to make an impact on finance-starved start-ups.”