Lawrence Jones, founder and CEO of UKFast

Megabuyte, March 2016. 

Screen Shot 2016-03-04 at 11.36.36The Megabuyte Interview: Lawrence Jones

It’s late in the day by the time I meet Lawrence Jones, and I’m pretty sure our meeting is infringing upon the cocktail hour that’s already well underway at the Baglioni. The Kensington hotel where Jones likes to stay in London is aptly described on Google Maps as “posh lodgings on Hyde Park”, but the CEO of UKFast is casual in jeans and t-shirt. “We’ve just launched eCloud Flex,” says Jones as coffee is served. “It’s a flexible, pay-as-you-go product that I think was missing in our portfolio.”

UKFast provides hosting and data centre services to UK businesses, so when the market wanted pay-as-you-go, that’s what UKFast made. But at its core, UKFast is about relationships: “We offer that Best-of-British service, and I’m very proud about that. … We have a pod system where all our customers get dealt with by the same people, day in and day out. Each pod has four technical people, a couple of experienced managers and account managers, so we’re able to do project management and business development while also being technical and very hands-on.”

Then the caffeine kicks in, or maybe it’s just Jones getting into it, because it very soon becomes clear that Manchester’s own UKFast really isn’t like the other kids. About 250 people work for the company now, a bit more if you include those working in areas like security and building – UKFast builds its own data centres, literally. Jones nods when I call it a “DIY approach” – they build other things too, like desks: “We created a building company within the organisation, so we have plumbers, electricians, critical power directors.” With all these people around, why should Jones buy desks if he could build them? “Our desks change colour depending on the status of the person. If you’re on a conference call, it goes purple. If you need some help, it goes orange. It’s a bit of fun!” He laughs. It’s not just the desks: there’s also the Japanese garden, the auditorium, the bar, the gym (featuring spinning, yoga, and personal training for directors) – the dog kennel’s currently under construction.

The creativity gene
The cost of doing all this in-house is negligible, says Jones, and it saves so much time – not to mention how you can link everything together if you make it yourself. “We’re a technology company and we’re very creative, and I think that needs to come out in everything we do. We wrote our own telephone system, our own software for accounts, our own launch platform. Our eCloud Flex is all open stack, but built on our proprietary software. We design and build everything it in-house.” The importance of this was stressed to Jones a few years ago, when he lost a team member to Facebook, and realised his competitors aren’t in Manchester or London – they’re global. So Jones went to look at how they did it at Google. “I realised nobody has a monopoly on creativity, and actually, creativity doesn’t have to cost an awful lot of money. Creativity is the difference between average and great.”

The UKFast brand of creativity isn’t just for the staff: “We’ve built services [for customers] that you wouldn’t necessarily expect in a hosting provider. We have a clean room with forensic guys dressed in beekeeper outfits to rebuild a hard drive, so if somebody lost their data we can recover it [ourselves].” Ok, I say, but why not just outsource things like that to specialists? Jones won’t hear it – he employs the best people: “Why wouldn’t I? I have 30,000 servers – something’s going to go wrong!” Having watched customers wait days to get their data back, at a steep cost, Jones decided to take the service approach: “Let’s do this in-house, and not charge for it.”

Jones looks for what he calls the “paper round gene” when hiring people at UKFast – that’s the willingness to work hard and do what it takes to succeed. His own metaphorical paper round was at the Chorister School in Durham, where he had a scholarship. Young Lawrence would come home with more money than he had when he started the semester. “My mum went to the maths teacher, asking, ‘What on earth is going on? Is he stealing this money?’” Jones laughs – what he’d do was buy sweets from the other kids at the beginning of term, and sell it back at a premium when they’d run out. “There was always an entrepreneurial side! But it was partly driven by the fact that we were never well off, and my parents always struggled.”

The Jones family business
Jones went back to his native Wales at 13 after his voice broke early – a brutal fate for a choir boy. “I came back to Wales and concentrated on rugby, piano, and cricket. I stayed there till I was 16, when my parents couldn’t afford to keep me in school anymore, and went to Manchester to seek my fortune.” Jones’ piano skills led to founding the Music Design Company, which he sold to Granada in 1997. UKFast was established two years later.

“I was about 30 at the time. I’d gone to New York and was just enjoying life: writing music, doing watercolours in Central Park, playing chess in Washington Square Gardens.” You pay $5 to play there, Jones explains, and he didn’t win much back then. “But I’d probably win now. I’ve spent a lot of time learning chess! … The internet was absolutely booming, and I knew I had to do something with that.” Jones went back to Britain and met “an amazing girl” called Gail, who became the UKFast cofounder and later, his wife. “Gail’s our Commerce Director. She’s an amazing woman. I’m creative and imaginative, she’s organised and straight. What I lack, she has in abundance, and vice versa. We’re the yin and yang. I couldn’t run UKFast without her, wouldn’t want to.”

The inspiration behind UKFast, or rather the frustration, was Jones’ attempt at hosting a website called “I thought, ‘If this is genuinely the service the British are getting, this is what we need to be doing.’ It was so naïve in hindsight, because we didn’t really know anything about technology – I was a musician, Gail was a chemist – and we didn’t have a huge amount of money. But what we did have was a reason and passion. … We’ve passed all our early expectations – I originally wanted to go back to writing music. The idea was to get £1 million saved and I’d build a recording studio, write music and wear scruffy clothes and be Bohemian. But I’ve gone way past that!” Jones did build his recording studio in the end, but the music has given way to another dream: “UKFast is an all-consuming family. Gail has three kids to look after, soon four – I have 250.”

Jones (47) and Gail are parents to Tegan, Poppy and Coco, with a fourth daughter arriving this summer: “I’m trying to get Gail to slow down, but she works really hard. She loves it!” They don’t have a nanny but they have a chef, “otherwise you spend your life cooking”. Date nights are Tuesdays and Fridays, he adds: “Those are our nights together, no matter what.” He recommends it – great discipline in a marriage. Not that they have an embargo on talking about work during those nights: “Oh no, we do. We have the calculators out, those little black books are everywhere” – he points to a pile of notebooks in the chair next to me. “We’ll look at our goals, we’ll be ticking stuff off. It’s non-stop, but it’s who we are.”

Building a nurturing company
Much of the risk in building UKFast has been mitigated by recurring revenues, says Jones. He learned this from his days renting out grand pianos – he had about ten of them, charging £30 a week; “I don’t think I’ve ever really, since then, taken a massive risk.” Of course, Jones is well aware that nothing he’s done would generally be considered cautious. But once he’s done his calculations, it just doesn’t feel like such a risk to him anymore. “What I would say is, never go for broke. Never spend everything you have, because if it doesn’t go to plan – when does anything ever go to plan? Things always take longer, and they always cost more. … If you are flexible with your goals, then you have half a chance.”

The merit of standing on your own two feet was stressed to Jones during the early days of UKFast, after he’d been making hay selling mobile upgrades. “We built the very first bulk text messaging system in Britain, and ended up being the fastest-growing supplier of Orange phones. … It went from nothing to being a massive part of the business.” But then one day UKFast managed to text the entire board of Orange, who loved the bulk texts – until they realised it was external. “They were furious because they hadn’t come up with the idea, and cut us off without warning.” They eventually came back, but it was too late. “My wife and I sat down and asked ourselves, ‘Do we really want to be selling Orange’s network, or do we want to be building our own?’ UKFast wasn’t a mobile network, but it was physical, cables under the ground. We thought, ’We’re small, but at least we’re in charge of our own destiny.’ So we decided we would never re-sell something of that size as a core product … because if they decide to pull the plug, you’re dead.”

Asked how worked out how to manage 250 people after the startup days, Jones cites listening, reading and getting it wrong: “I’ve lost some brilliant people over the years by not understanding how to get them to the next level. But now, we understand. Now we have a good business that nurtures people. And if there’s no room for them to grow, you can advise them to set up another business, and then fund that.” He can be pretty hands-on at times, Jones admits, but his favorite thing to do is find someone talented, hand them something, and watch them develop it. This has led to the UKFast University, a cloud and e-commerce Master’s degree with Manchester Metropolitan University, and an apprenticeship programme with the Dean Trust; Jones feels strongly about giving back to Manchester, the city that took him in. “But when people say, ‘How have you done it? How has Lawrence Jones done it?’ I tell them, ‘It has nothing to do with me. It’s these guys who’ve done it.’”

The ultimate motivation
Jones is refreshingly direct when he talks, and surprisingly open about his life – his blog on is kept fresh with business advice and personal development insights. Most remarkable is the story of the Pic Blanc avalanche in 2001, which almost claimed Jones’ life when he was buried under snow for more than eight minutes. I ask him about it because he’s written about it several times, and it’s only later I learn he doesn’t usually discuss it. But there’s no doubt the experience changed Jones’ life in a profound, enduring way:

“When you’re being suffocated and you’re conscious that you are dying – it doesn’t take very long. You go to sleep pretty quickly. But those few minutes feel like a lifetime. … When you wake up from a situation like that, there’s a lot going through your head. It took me weeks to work out, was I really alive? I was convinced I had died, because I was aware I was dying.” People would come up to him in hospital afterwards, touching his arm for good luck, Jones says, laughing. “But I’ve got goosebumps just thinking about it. When you know you’ve been given a second opportunity, I can wholeheartedly promise you that not a day goes past in my life without trying to make an effort.”

The next effort for UKFast is Secarma, the ethical hacking arm: “Our customers need it. We spent 16 years getting people onto the internet, and we now need to spend the next 16 protecting them.” Jones recently came back from Le Farinet, his hotel in Switzerland, having taken some of his staff skiiing in an effort to cure their back-to-work blues. “All the businesses are complementary, even the hotel. They all work to help and support each other. I’ll never end up owning something like a dog food factory – that wouldn’t make any sense. But I might end up owning a power station.” Maybe a wind farm, I suggest, and Jones counters with hydro-electrics. The UKFast centres already run on green energy actually – it costs extra, but Jones thinks it’s the right thing to do.

Then follows a five minute detour into power grids, and I ask Jones if there’s any topic he can’t get enthused about? He laughs: “People ask me, ‘How can you be so upbeat all the time?’ But listen, life’s difficult and life can throw you some really nasty curveballs. But you can be grateful. Some people say, ‘I have nothing to be grateful for.’ Well, I’m grateful for the air I breathe. When you’ve had it taken away from you – something as simple as just breathing air, walking around Hyde Park this morning. It’s a beautiful, glorious day, looking at the sunshine.”

Gemma Godfrey: Making a quantum leap

Hedge Magazine, 2015. Original article p62-64.

Screen Shot 2015-11-27 at 15.36.28

Quantum Leap
When Gemma Godfrey realised no one else was going to create the next-generation investment company she wanted to join, she left Brooks Macdonald and started herself.

When you first hear about Gemma Godfrey, you may find yourself wondering how she gets so much done – she’s one of those people who always seem to be doing a million things. Right now, Godfrey is starting her own investment company, advising on boards, appearing on TV, and raising a child – all while tweeting the best, dorkiest fintech memes. But after a couple of hours in Godfrey’s company you won’t be wondering anymore: the woman is so energetic, so in-the-know, and so downright lovely that it seems about right she should be so successful at just 32.

Because who wouldn’t want to hang out with Gemma Godfrey? She’s full of interesting opinions, about life in London, doing your own thing, how tech is changing the world, and the best music to play while getting a sweat on – Godfrey is a keen runner. “It’s just freeing. You can go out, put on some music, you don’t need anything. I love it.” Godfrey likes to run to R&B, pop and hip-hop: “Okay, it’s quite hardcore hip-hop!” She laughs. “I really like boxing too. I’m really not that good though. I need to learn to duck, that’s the next step.”

But really, but if you want to see Godfrey properly on fire, ask her about – that’s her new company. “Oh there is quite a lot to do!” Godfrey left her job as head of investment strategy at Brooks Macdonald at the end of August, meaning she’d only been at it for two weeks when our meeting takes place in mid-September. But the idea of going out on her own has been brewing for a long time. We’re sitting in her office in a freshly painted Soho startup loft, surrounded by digital art and people working at standing desks. Godfrey is in white jeans and subtle gold top, accented by bright orange heels and stylish gold jewellery, just back from this morning’s BBC appearance. Everywhere are wall-to-celing charts and notes, reminding you that is being created before your very eyes.

Screen Shot 2015-11-27 at 15.35.18A next-generation company
Once it’s up and running, will be a wealth management company, or a so-called robo-advisor: an algorithm-based portfolio advice company. You could also call it a fintech startup. The idea, says Godfrey, using both hands to speak now, is to make wealth management more accessible, give people more control over their finances, and make it more affordable. “At the moment, wealth management is really only being offered to a restricted number of people,” says Godfrey, pointing to how IFAs require a minimum lump sum of £50k, and private banks need you to have a cool million. “So how can we offer advice to people who’re earning good money, but don’t have these massive lump sums? The so-called HENRYs: high earners, not rich yet.”

As opposed to the high-risk crowdfunders, will be far less exciting, laughs Godfrey, meant for people who want to see their money working for them. “Oh this is meant to be steady, stable! If you want to diversify a portfolio: a little bit in equites, a little bit in bonds, a little bit in property. … What’s exciting is that now, with technology, you can make it cheaper to provide this service to people. If you can lower the cost of providing this service, then you can open it up to more people.”

Godfrey is planning to launch some time in the spring, although it’s hard to say as it’s still so early: “You’re getting this at the very, very start!” She’s just hired a CTO, and she has some early investors on board as well. “We have a few different partners we’re talking to, in order to get it up and running as quickly as possible.” This won’t be just another investment company though – is a next generation fintech company, aiming to create a smooth user experience for people who’d rather use an app than going in to talk to an advisor. Godfrey doesn’t quite know what the details will look like yet – it’s only been two weeks! – but the idea is clear: “The differentiating factor is providing people access in a user-friendly way. … What we’re trying to do is get people from the point of having limited options, to having investments that help them progress towards financial freedom.”

Screen Shot 2015-11-27 at 15.35.13From physics to finance
Fintech is a hot topic in the London startup scene right now, but for Godfrey, feels like the natural development of a 12-year financial career. “I’ve been working in financial services for all these years, and I’ve been harping on about how we need to provide something that’s more customer-centric! It’s come to a point where I’ve realised that actually, technology is now advanced enough that we can give them that type of service.”

Because until now, Godfrey’s had a quite traditional financial career. Most recently she spent nearly four years as head of investment strategy at Brooks Macdonald, which manages £7 billion across 10 offices. Previously, she chaired the investments committee at Credo Capital, after stints at GAM and Goldman Sachs. She was an advocate for the Alternative Investment Management Assocation for five years, and remains on the board of several organisations. So why is she going out on a limb with, I ask – life must have been pretty comfortable! Godfrey laughs. “The big thing that motivates me,” she says after thinking about it, “is this feeling that you want to have an impact, you want to make a difference. I’ve always felt like that, wanting to work in smaller teams and be able to actually shape something. … I’ve realised I’ve spent the last few years waiting for somebody else to do this, and I thought I would join them! But there aren’t really that many people out there who’re doing this. This is a great opportunity to do it myself.”

Godfrey’s inquisitive streak comes from a place that may comes as a surprise: she focused on quantum physics at university. The roots go even further back though, to North London Collegiate School, where Godfrey can’t praise her physics teacher enough for encouraging her to follow her curious nature. “Science is all about solving problems. Why is the world the way it is? How can we do something about it? That’s applicable to so many things. … Quantum physics is all about challenging preconceptions. When everyone’s coming at it from one angle, let’s look at it differently, let’s take nothing for granted.”

The link from physics to finance is how they both call for creative solutions, says Godfrey, adding how both fields require taking something complicated and finding a way to make it easier to understand. The knack for clear communication around financial topics has led to Godfrey becoming a regular commentator on TV: “That also comes back to wanting to make a difference, and wanting to solve problems, and to communicate things that are complicated in an easier-to-understand way.”

Screen Shot 2015-12-14 at 11.25.01The realtalk advantage
Having her face on TV and in newspapers and magazines for the past seven years has made Godfrey that thing they call an industry thought-leader. This, she admits, helps with getting people to trust you with their money. But Godfrey thinks the financial sector is becoming more open in general: “The industry is realising they need to have more of a voice, as opposed to being a faceless institution. When you can be relatable to your own customer, that builds trust and helps you grow.”

Godfrey is the first to point out that being a good communicator is something you have to learn. In her TEDxWallStreet talk, ‘How to kiss’, she shares how her first TV appearance was something of a dud, and she echoes the same lesson now: “In the beginning, when you’re not quite sure what your view is, you hide behind jargon. It really does leave you vulnerable when you go out there and you say, ‘Look, this is really what I think is going on.’ If you don’t explain it in a really clear way, a lot of people are going to turn around and say they don’t agree with you.”

Ultimately, having different things on your plate means getting lots of interesting ideas to take back to your day job, says Godfrey. “I like variability. It stops you from getting isolated, and makes you think in different ways.” Her friends work across all sorts of industries, says Godfrey, whose husband Wayne is a film producer. He, and two-year-old Dexter, is all over Godfrey’s Instagram, alongside photos of days out, media appearances and inspirational quotes. “I’m surprised at how naturally things have progressed,” says Godfrey, when asked if she expected to be where’s she’s at today. “Even though I’ve always had that entrepreneurial spirit, I’ve liked the security of working in big organisations. What’s surprised me is how this transaction felt so natural! There are so many synergies with other things I’m doing. It’s tapping into so many exciting things that are going on, which are gathering momentum even faster than I expected.” She laughs. “It’s always a roller coaster! I’m excited that I’m here.”

Why simple technology is the key to popularity

UK2 Group 2014 – on

Screen Shot 2015-02-10 at 21.02.51Too clever: Why simple technology is the key to popularity
Does anyone really understand how BitCoin works? Well okay yes, a lot of people do, but still, the virtual currency is a furiously difficult concept to wrap your head around. You create BitCoin from mining them on your computer, but even if that makes sense to you, the cryptocurrency hit a a major snag earlier this year when a BitCoin mining pool called gained control of 51% of all mining power. This means the pool could hack the system by blocking transactions, or spending coins that don’t belong to them. Experts are working on a solution to this potentially fatal flaw to what is supposed to be a decentralised currency, but it doesn’t negate the simple fact that BitCoin is probably far too complicated to ever take off as a commonplace technology.

Long gone are the days when inventing something first was enough for success, because originality will only get you so far – what we care about now is quality. What “quality” means has changed over time: people have been drawn to things that look flash, or to advanced functions, while other times we have been after the cheapest. But right now, quality means user-friendly, and what that means for companies is great design.

Take the MP3 player – it was Apple who popularised the MP3 music player by way of the iPod, but the company was far from the first to imagine or manufacture such a device. Sony came up with the idea with the Walkman portable cassette player in 1978, before Fraunhofer IIS came along with the first MP3 player in 1995. The iPod didn’t see the light of day until 2001. So why had the many different MP3 players that came before failed to fire up the public’s imagination? It’s not like they hadn’t been selling the same idea: a portable music player where you can store a whole library of songs.

What set the iPod aside was its extreme user-friendliness, made possible by a uniquely simple design. The inner workings of the device were just as complicated as the less popular competitors, but all the user could see was one button and one wheel. Anyone who’s ever tried to programme a 1980s video player can testify to the fact that user-friendliness was not always a priority for technology companies. Today it’s a different world – can you imagine downloading a smartphone app that comes with a manual? Instead we download all these complex apps that require no instruction at all. We just open them, and it all just seems obvious.

While the product needs to be sophisticated to do what people want, the challenge is to keep the surface as clean and uncluttered as possible people can easily work it out. Additional features can then be added in a second layer, accessible for those who are interested. An example of how this can be done is Tumblr, the blogging platform now owned by Yahoo!. Tumblr is possibly the simplest blogging platform out there, giving users minimal control over their layout. But the user interface is beautifully designed, making it very easy for anyone to start blogging without having to read a manual, let alone knowing anything about coding.

It may be tempting to make technology more complicated in an effort to fit in more functions, but companies should keep in mind it was Facebook’s more structured – yet limited – layout that became the social media platform of choice, even though MySpace was there first and offered more choice of expression. In the technology race, simple will often beat complex.

Kids running their own business? Yes they can!

Aquila kids’ magazine, October 2014.

Screen Shot 2014-09-27 at 14.20.30Kids running their own business? Yes they can!
If you could have your own company and work for yourself, what would you do? Running a business is challenging, but if you’re ambitious there’s no reason you can’t start something now.

There is no age limit to having your own business, as long as you start small and are willing to go through a bit of trial and error as you learn. Working any job would teach you so much about life, such as being creative in ways that don’t follow set rules, and maybe even taking a few chances. Working for yourself also teaches you a lot of practical things, like how to handle money, dealing with customers, and figuring out what people want.

These things are true regardless of what kind of work you want to do – it could be babysitting, cutting grass, running errands, washing cars, or walking dogs. Kids can also earn money from make greeting cards, tutoring younger children, making baked goods, or offering lessons in sports or music – or maybe you could even teach social media to people who are less computer savvy? In any case, start by taking a moment to think about some things you enjoy doing or making, and how this could be turned into a business. Henry Patterson from Buckinghamshire got the idea for his business after hearing his parents and grandparents tell stories about the kinds of sweets they used to eat as kids. This led to Henry starting his own sweets company, “Not Before Tea”, when he was just nine years old.

It’s probably a good idea to ask your parents or guardians if they can help out a bit with your business. Even kids have to pay tax if they earn more than a certain amount of money per year: at the moment this limit is £10,000. Of course, this won’t be an issue for a small babysitting business, but even if you earn just a little bit of money, it may be fun to have a separate bank account where you can watch it grow. With a bigger business, having an adult involved could be useful when it comes to checking if the company needs to be registered or needs any special permits – this may be the case if it involves food.

Getting help from mum and dad has been very important to Ally Mollo from California, who started her own dolls business when she was just eight years old. Ally used to draw pictures of angels to watch over her and her friends, and decided to make them into dolls. Now her business, “Guardian Angel Rainbow Division”, sell angel dolls that come with their own stories. Part of Ally’s earnings go to charity, and Leanna Archer from New York even set up her own education charity foundation with some of the profits from her company. Leanna was only eight years old when she started “Leanna’s Hair”, where she sells hair products made from recipes that have been used in her family for many generations.

Like most kids, Ally didn’t know anything about business, so she had a lot to learn when she started. One thing was how to register intellectual property, which was necessary so nobody else could copy her dolls. One of the most surprising things for Ally was just how long it took to get the business up and running: it took over a year of going back and forth with the factory to get the first dolls made. She also needed her parents to help pay for the first round of products, so she would have something to show to people interested in buying them.

When it comes to technology businesses, kids may even have an advantage over adults: you grew up using the internet. The World Wide Web wasn’t even invented until 1989, meaning most people who are adults now had to learn how to use the internet, instead of it being something that’s always been around. Thomas Suarez from California was just 11 years old when he started “CarrotCorp”, a company that makes smartphone apps. Now 15, Thomas also makes apps for Google Glass and 3D printing, after having taught himself how to write computer programming code. This was also how James Gill from Kent started software company “GoSquared” at 15 with two school friend – they would get together in the evenings and teach themselves how to make the computer do what they wanted it to do.

While you should definitely pick something you like doing when you start a business, it’s also important to pick something that people are willing to pay money for. Before you start, do a little customer research: ask people what they think about the idea. Would they use your product or service? How much would they be willing to pay for it? It’s also very possible that your first idea won’t be your best one. When James and his friends first started GoSquared, their main product involved selling advertising. Then they made a software programme that analysed how people were using their website, only to realise that this was a much better idea for a product to sell. Now, as GoSquared has moved to London, this is their main business. Similarly, Henry started “Not Before Tea” as an old-fashioned sweets business, but has since expanded to selling things like books and clothes in the same style.

Chances are, your first business idea won’t be a job for life. But it could certainly teach you a lot of things that will be useful later, both at school and in your future job. Having a bit of extra pocket money isn’t too bad either, whether it’s to save up for something special, or to help someone else through a charity. In any case, working for yourself is a great way to figure out what you want, what kind of thing you’re good at, while also providing some practice for the things you’re not so good at. Because there are plenty of things we can learn from books, but there are lots of things we learn best by doing.

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Crowdfunding goes pro

Banking Insight, June 2014. Original article.

Screen Shot 2014-05-23 at 12.58.12How crowfunding is becoming a viable fundraising tool for business 
Starting out as a way to throw some cash at struggling musicians, crowdfunding is quickly growing into a fully fledged financing alternative for businesses seeking equity. Traditional banks best take notes.

They say necessity is the mother of invention – this would certainly explain why a brand new way for companies to access capital has emerged from a recession. Crowdfunding is the model that sprung up to fill the void when banks were reluctant to provide development cash for small companies during the economic downturn. For UK businesses, there is now a £84 billion to £191 billion gap in funding over the next four years, according to a government review. But if banks do not want to step up, there are others who might.

Of course, business equity was not what crowdfunding originally set out to do. Born in the creative industries, the first crowdfunding platforms were Kickstarter and Indiegogo, where musicians and artists could reach out to fans for cash for their next projects. Sometimes contributors would be rewarded with a copy of the product, but often the reward was simply to know they had contributed to something they wanted to see exist in the world.

This was the inspiration for equity crowdfunding, or peer-to-peer lending, which is slowly becoming a genuine alternative for businesses to access funding. For investors, the structuring of crowdfunding platforms is also improving to the point where they can offer not just donations but also loans with interest, and get return on equity if and when the company in question performs well.

An increasingly global market
Crowdfunding campaigns across the globe raised nearly USD2.7 billion in 2012 through all crowdfunding business models and platform types, according to the World Bank. USD1.6 billion of this was in North America, financing over a million projects including start-ups, scientific research, community projects and games. USD945 million was raised in Europe, with the remaining USD110 million in the rest of the world. Across all regions, crowdfunding expanded at a 63% compound annual growth rate (CAGR) from 2009 through 2012.

“While the recent global recession has played a part, advancements in technology are also a significant driver of the recent growth of this type of model,” said Yannis Pierrakis, Head of Investments Research at the National Endowment for Science, Technology and the Arts (Nesta), the UK innovation foundation. “The proliferation of internet use and growth in social media has enabled those seeking finance to reach more people with greater ease and at far less cost. The ability to securely transfer money online allows those seeking to back a project or business to safely contribute funds. And the increase in the quality and volume of data available on individuals and businesses finances allow for the creation of accurate credit scores, which allow lenders to set suitable interest rates on the finance they offer.”

It is still early days for crowdfunding, and Nesta’s 2013 report, ‘Banking on each other’, concluded it remains to be seen whether this kind of business lending will be sustainable over time. Still, studies by peer-to-peer lender Funding Circle have suggested companies are increasingly open to considering crowdfunding as a funding option, as long as the platforms provide attractive facilities. While 60% of businesses who approached Funding Circle had tried banks first, 77% said they would go straight to the crowdfunder next time. Speedy processing, good interest rates, clarity of terms, and easy-to-use platform was cited among reasons for preferring Funding Circle over banks.

Crowdfunding goes pro
Last year, UK fund management veteran Nicola Horlick raised £150,000 for her new film finance company, Glentham Capital, in just 22 hours through equity crowdfunding site Seedrs. About 135 investors chipped in to meet the funding target, which represents 10% of the new company. All UK-residing adults are eligible to invest via Seedrs, provided they pass a quiz showing they understand the risks of early-stage investing. Contributions can start as low as £10. Seedrs carries out due diligence on all the companies on the platform, and takes 7.5% of the funds raised, as well as 7.5% of any profit made by an investor through an exit or dividend.

“Having been a fund manager for the past 30 years, I know what a great opportunity it can be to invest in a fund management company. In the old days, there was no way that I could have opened an opportunity like this to the crowds, but Seedrs provides me with the perfect opportunity to do so,” said Horlick, who is now planning her own crowdfunding platform: Money&Co. “Our platform will let people lend to businesses at a rate agreed by both parties. It is a smarter way for businesses to get the capital they need and for people to get a better return on their cash.” said Horlick. “At the moment, banks are not doing enough for credit-worthy businesses. Money&Co will bring together good businesses that need to borrow to expand, with people who want to save at a more attractive rate than the banks offer.”

Money&Co will join Seedrs and Crowdcube in their mission to fund UK companies. SyndicateRooms and InvestingZone are among newer entrants to the market. Specialist platforms include MoolaHoop, focusing on women entrepreneurs, and Trillion Fund, targeting renewable energy projects. In the US, Crowdfunder, CircleUp and RocketHub have joined Kickstarter and Indiegogo in a market that now has over 300 platforms. These include Somolend which specialises in loans for small businesses, and Appbackr which focuses on fundraising for new apps. AngelList is among established names in Silicon Valley, connecting professional investors with startups.

Regulating a young industry
The US crowdfunding market got a boost last year when the Security and Exchange Commission (SEC) changed the rules to allow companies to sell stock via these platforms. Previously, shares could only be sold if they were registered, a process that can be costly for small companies. The SEC’s new rules, politically prompted as a means for job creation, have been well received in the industry as likely to encourage growth. “The way the world has worked in early stage investing has been fairly stable over the last 20 years. The argument is that it is hard to manage investors, time-consuming to communicate with them, and challenging to gather their votes,” said Sherwood Neiss, co-founder and Principal of Crowdfund Capital Advisors. “The data demonstrates, however, that while some investors may be saying negative things about crowdfunding, others are using this new tool for deal flow.” Data from Crowdfund Capital Advisors suggests 28% of companies had closed an angel investor or venture capital round within three months of crowdfunding, while an additional 43% were in discussions with institutional investors.

Having said that, this remains a crucial time for the crowdfunding industry to get its foundations right; the theoretical potential for scandal is there if practices are careless or investor education poor. Wrote Neiss in ‘VentureBeat’: “The [SEC] rules need to maintain the ability for investors to sue for fraud, while reducing lawsuits against companies that just fail. Even though the legislation mandates that investors complete an education series on crowdfunding, investors should also be required to sign a document acknowledging they could lose all their money, that they are responsible for reviewing the investment materials prior to investing.”

Also keen to see a solid foundation built for this budding industry, the UK’s Financial Conduct Authority (FCA) announced in March a new set of rules for crowdfunding. This included a requirement that non-professional investors do not invest more than 10% of their savings per year, a move criticised as excessively strict by the industry. The FCA, however, pointed to the “significant risk of failure” on part of the companies seeking funding as a motivator for protecting investors from getting in too deep. “We are trying to strike a balance between on one hand making sure consumers are properly informed and have real clarity about the investments they are getting into, but on the other hand, making sure this […] source of funding is open to businesses and individuals,” Chris Woolard, Director of Policy, Risk and Research at the FCA, told the BBC.

Enter Asia
While crowdfunding has yet to make the same waves in the Asian markets, this may only be a matter of time. Singapore, Korea, Brunei and Malaysia have started showing interest in rewards-based portals, as several platforms have launched in South Asia in the last couple of years. Pozible is an Australian platform that expanded into Singapore and Malaysia earlier this year. “We are working to build up our user base in Asia, and these efforts are already starting to show developments, with an increase in Asian projects and Asian web traffic,” Pozible Co-founder and Director Rick Chen told ‘TechCrunch’. Focusing on funding creative projects, the company wants to differentiate itself by becoming a specialist in the region.

Swedish site FundedByMe entered the Singapore market last year, offering the option for local businesses to raise money in exchange for equity. “We see Singapore as the gateway to Asia. We will be reaching a massive new market of potential crowd investors who are eager to help us build on the cross-border investment motion that has made FundedByMe a popular choice for European investors,” said Daniel Daboczy, CEO and co-founder of FundedByMe. “Early feedback tells us that Asian investors are keeping a keen eye on the European start-up scene, and vice versa.”

Earlier in 2013, Singapore’s own Crowdonomic stepped up to provide a professional crowdfunding service for businesses. Leo Shimada, Founder and Managing Director of Crowdonomic, told ‘Fortune’ there are several reasons why the region has yet to fully embrace this funding model. The absence of a high-profile frontrunner like Kickstarter is one, as this means the concept is still alien to much of the general public. Local culture is another reason, said Shimada: “Wherever you are in the world, no one wants to be a loser, but especially [not] in a region like Asia, where there is this thing about saving face and a pronounced fear of failure.” This is different from Silicon Valley, which is unique in its acceptance of trying and failing as a natural part of building a business. As long as he or she works hard and is smart, an American entrepreneur can go to a crowdfunding site and still save face if the target is not reached.

Scholars have however deemed crowdfunding to be Shariah-compliant, suggesting it could become an interesting opportunity for Muslim countries to explore. The World Bank’s 2013 report, ‘Crowdfunding’s potential for the developing world’, pointed to the early success of Eureeca, which helps small companies in the Middle East raise equity, and Shekra, an Islamic finance-compliant site which combines an incubator model with crowdfunding for Egyptian companies. “There is a bias towards real estate and equity in compliant [established companies], you also have some commodity funds, and so on,” Rushdi Siddiqui, Co-Founder and Managing Director of Azka Capital and Shekra board member, told industry site ‘Crowdsourcing’. “But in the area of venture capital, which is what the essence of Islamic finance is supposed to be about – partnership and risk-sharing – there is very little [activity].”

Success factors
When it comes to determining how successful a crowdfunding project will be, the quality of the project is only one factor. Ethan Mollick, Assistant Professor at the Wharton School of the University of Pennsylvania, found that equally important is the size and quality of the founder’s network, and whether the project has a connection to the founder’s geographic area.

“For entrepreneurs who seek crowdfunding, there are some clear lessons. First, project quality is important, and entrepreneurs should look for ways to signal preparedness. Social network ties have also been found to be important in crowdfunding,” said Mollick in his 2012 research paper, ‘The dynamics of crowdfunding’. “Second, appropriate goals are those that allow a founder to deliver a product on time; achieving significantly more funding than requested is rare. Most importantly, careful planning is required both to set these goals and to prepare for a crowdfunding success, which will entail a need to rapidly execute a promised venture.”

While smaller companies looking for crowdfunding may find there is more competition now as the funding method has become more popular, others may find there is more money to go around. As platforms are being set up to handle larger investments, the bigger guns in traditional finance are increasingly showing interest; US peer-to-peer platform Lending Club spent around USD1.5 billion last year, and has among its directors former US Treasury secretary Lawrence Summers and ex-Morgan Stanley CEO John Mack. Last year US hedge fund Eaglewood Capital sold some of its Lending Club loans in a USD53 million securitisation deal, essentially giving institutional investors exposure to SME loans for the first time.

Of course, this is nothing in comparison to the funds handled by traditional financing outlets, but for an industry that is only a few years old, it is a flying start.