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Is the power of crowdfunding here to stay?

Neil Martin talks to Julia Groves, Partner and Head of Crowdfunding at Downing, who spends her Fridays in Shoreditch.

Shoreditch is what estate agents like to describe as an up and coming area. And they are right. You walk down Bishopsgate, past huge glass-fronted edifices which house some of the City’s most illustrious names and walk onto Shoreditch High Street, and you are in another world.

It’s a world where gentrification is happening in front of your very eyes; where the old east of London is gradually giving way to a new age. It’s all about pop-up boutiques, hipster coffee houses and knick-knack shops selling expensive oddments. But there’s also a raw energy, a distilled odour of capitalism that permeates the air – a sense that this is where start-ups are born and where the next generation of entrepreneurs will emerge. And, aptly, it’s also where Julia Groves, Head of crowdfunding at investment firm Downing, spends her Fridays.

New thinking

Her chosen billet for the end of the week is Shoreditch House and she finds it an ideal base to recap on the week. She explained: “I’m a very goal orientated person. I spend the week ‘doing’ and by the time I get to Friday, I’ve got lots of stuff done, and I still haven’t solved some of the challenges I knew about on the Monday, so on a Friday I don’t go into the office. I just take a bit of space to do the thinking time – pick up anything I haven’t managed to sort out in the course of the week. It’s a routine that works for me.”

Formed in 1986, Downing is a specialist investment house which caters for financial advisers, businesses seeking funding and investors. Vehicles include asset-backed bonds, property finance, public equity, renewables, ventures and of course crowdfunding. The firm has over 35,000 investors. It has raised and invested over £1.7 billion into a whole range of businesses, including care homes, pubs and solar farms.

Open products for financial advisers include Venture Capital Trusts (Downing ONE VCT plc and Downing TWO VCT plc); Enterprise Investment Schemes (Downing Ventures EIS); Inheritance Tax Relief (Downing AIM ISA, Downing Estate Planning Service and Downing AIM Estate Planning Service); ISA (Downing AIM ISA); and, Open Ended Investment Companies (MI Downing UK Micro-Cap Growth Fund, QAM Downing Monthly Income Fund and MI Downing Diversified Global Managers Fund).

Groves joined Downing in January 2016 to build the firm’s crowdfunding business which offers asset-backed bonds to retail investors via their own online platform.

Groves is no stranger to the digital and entrepreneurial world. In 1994 she co-founded and since then, has invested both her time and money in a series of new businesses in the digital and environmental space. This included, most recently, Trillion Fund, a loan based crowdfunding platform for renewable energy projects. She co-founded the UK Crowdfunding Association in 2012 and has been instrumental in reforming regulation for crowd investors, and in the creation of the new Innovative Finance ISA.

Leading the way

As to whether she regards herself as a pioneer of the crowdfunding sector, she replies honestly: “It certainly feels that way, I originally founded Trillion to offer triple bottom line returns with profit as the main motivation, but also benefiting people and planet, and that’s pretty close to Downing’s attitude.

“We wanted to measure success by the number of people who were part of the project in terms of investment, not just the amount of money, and that just flew in the face of old school financial services. But it had to happen. I’m afraid there are a lot of things you can only get into if you are already rich, so how are you going to get rich if you have to be rich to get into them into them in the first place?”

Providing opportunities

Groves worked with other key alternative finance businesses such as Seedrs, Crowdcube and Abundance lobbying the Treasury, the Department of Business Innovation and Skills, and the FCA, explaining the idea of democratic finance and peer investments. For her, it’s all about people having the opportunity to choose the business in which they want to back, and see where their money is going, which, fundamentally, is what crowdfunding is all about.

“We founded the crowd funding association in 2012,” explained Groves “and it was 12 pretty arrogant, aggressive entrepreneurs who wanted to take on the existing financial services, and the only way we were able to change the landscape was to work together. It was a battle to get consensus, but when we did, and we walked back in and asked for change in tax and regulation, we got it. When everyone’s asking for the same thing, asking for proportionate regulation, pushing for a level playing field on tax, that’s when you can drive real change. It’s unbelievable, the achievement of the industry in the course of just a few years.”

Looking ahead

She believes that crowdfunding is here to stay: “Maybe not the way we see it now, but the changes brought in by the conservative government are really driving competition in the sector. As a result I hope we can move beyond five banks which are too big to fail and too big to jail, into a more diverse financial services industry. That would give us financial stability, and not just for the sake of it. And what we’re seeing now is that the rest of the world mimicking UK policy.”

Downing Crowdfunding provides investors with opportunities to lend directly to a range of UK companies via bonds secured on their assets. The interest offered typically ranges from 5% to 7% p.a., with terms from six months to five years, and all bonds are secured against operational assets.

A shining example is the Kenninghall Solar One Year Bond which is now fully funded. Developed by Armstrong Energy, the Norfolk solar farm will generate 8MW of energy. The target of £3.2m was reached in under two weeks. The Bond provided investors with the opportunity to earn a fixed rate of 6.25% p.a. gross.

Let’s finish with a typical forthright view from Groves: “I see money as the means and not the end. I think a lot of investors are looking to try and achieve something with their money and that people do really enjoy seeing where it’s going, and what impact it’s having. For me the transparency is what this is all about.

“I personally only got into investment, because I was trying to solve our energy problem – making it more sustainable, because I think climate charge is a threat to the planet and our pensions for that matter. But there was no way of changing energy unless I changed money, so that’s how I got into investment in the first place, trying to save the planet.”

And who can argue with that?

If you’re looking for more information on equity or bond crowdfunding, or Downing’s products? Just drop the IFA team a quick email by clicking here.