Crowd2Fund In Suffering

By Neil Faulkner, 4thWay Head of Research on 16th June, 2024 | Read more by this author

It's an understatement to say that Crowd2Fund has not had the most successful trajectory for a startup business in terms of its own growth, success and profits. Lenders need to factor this into their decision making.

Crowd2Fund (read review) launched in the mid 2010s. Most of the companies listed on 4thWay that launched in the same era have already reported annual profits or are at least around breakeven.

This includes: Kuflink* (review), Proplend* (review), Somo* (review), CapitalStackers* (review), Downing (review), CrowdProperty (review) and Unbolted (review).

Crowd2Fund is now in the minority.

Comparing Crowd2Fund

Let's leave aside those eight, which are firmly in a new phase in their existence.

Let's compare Crowd2Fund to the others listed on 4thWay that were launched around the same time and that have not yet published a full annual profit.

There are two such providers: Invest & Fund* (review) and CapitalRise* (review). Both their startup-like trajectories look more normal and decidedly healthier than Crowd2Fund.

Let's look at the amount lent in each of these three online lending platforms, their revenue and their net profit. We'll start with the amount lent:

New lending in calendar year

Year	Crowd2Fund	Invest & Fund	CapitalRise
2023	£3,500,000	£50,000,000	£63,800,000
2023 change vs 2019	-60%	+51%	+212%
2022	£4,200,000	£52,300,000*	£52,300,000*
2021	£3,600,000	£37,900,000	£55,100,000
2020	Negligible	£12,100,000	£28,800,000
2019	£8,800,000	£33,200,000	£20,400,000

Due to non-timely reporting from Crowd2Fund, and occasional errors, some of the numbers might slightly overstate one year and understate a neighbouring year. However, unless their figures are completely flawed, the errors will be small enough that it won't disguise the true trajectory of its lending.
*Not an error that these two figures are the same.

As you can see from the table above, Crowd2Fund is the only one to see its lending lower last year than in 2019. Far lower, at -60%.

That's unquestionably a huge collapse and not a startup trajectory you want to see. Even if you ignore 2019, lending volume has been stagnant at best since then.

The other two are up at least 50% on their 2019 lending volumes. They also started from a much higher point than Crowd2fund, with at least 2.3 times as much lending in 2019. They had at least 14 times more lending than Crowd2Fund in 2023.

Annual revenue by provider's financial year

Year	Crowd2Fund	Invest & Fund	CapitalRise
Latest year	£300,000	£1,500,000	£1,600,000*
Latest vs 4 years ago	-57%	+120%	+282%
1 year earlier	£300,000	£1,400,000	£1,500,000*
2 years earlier	£100,000	£400,000	£1,000,000*
3 years earlier	£500,000	£700,000	£700,000*
4 years earlier	£700,000	£700,000	£400,000*

*CapitalRise's published accounts do not provide revenue figures. The figures shown are calculated estimates based on limited information provided, but they should reasonably represent trajectory.

Matching the decline in lending through its online lending platform, Crowd2Fund's own income is down nearly 60% between its five latest published annual results.

In stark contrast, the other two providers have seen their income either more than double (+120%) or be up nearly four-fold (+282%).

Annual loss by provider's financial year

Year	Crowd2Fund	Invest & Fund	CapitalRise
Latest year	-£1,100,000	-£800,000	-£500,000*
Losses vs 4 years ago	+10%	-38%	-69%
1 year earlier	-£1,000,000	-£300,000	-£100,000*
2 years earlier	-£800,000	-£1,100,000	-£800,000*
3 years earlier	-£900,000	-£300,000	-£1,400,000*
4 years earlier	-£1,000,000	-£1,300,000	-£1,500,000*

*CapitalRise's published accounts do not provide full profit/loss figures. The figures shown are estimates based on limited information provided.

Crowd2Fund is the only one of the three to have been completely unable to reduce its annual losses. This is despite several rounds of cost-cutting, board changes and numerous, innovative attempts to launch new loans and lending products.

In contrast, CapitalRise has made a lot of headway in reducing its losses, down nearly 70% in its last full-year report.

Indeed, CapitalRise has stated that it actually was profitable in the last quarter of 2023. With its lending volumes still doing well, it seems likely that it could be profitable from this point onwards if it so chooses, although I have reason to believe it will instead choose to overspend. (More on that in a sec.)

Invest & Fund has made some headway in reducing its losses, although it has more work to do.

Precarious financial position

Invest & Fund and CapitalRise, at last reporting, had enough cash.

Invest & Fund had about a million to spare after any outstanding debts it had. Its lending volume in 2024 so far is also about double the pace of 2023.

CapitalRise had a net positive balance of over £5 million at the end of its last reporting period and it was strongly raising money from shareholders. This is why it will probably choose to overspend in some of the coming years to push further growth. Because there's no point raising large amounts of new funding from shareholders if you've practically entered the time where you want the company to sustain itself from profits alone.

Crowd2Fund, on the other hand, has now turned to borrowing in order to pay its bills, having sold around £650,000 in convertible loan notes. Those are loans that often have a lower rate of interest and which the loan holders can potentially convert into shares in Crowd2Fund's business.

Regardless of what type of loan it is, startups that aren't yet profitable don't usually borrow much money. It is most unusual. You generally want to see businesses at this stage getting their funds for growth from investors who buy shares.

If Crowd2Fund investors are lending to them and not buying shares outright, it indicates those investors could have less confidence in the business. It also puts greater strain on Crowd2Fund's finances, as it needs to pay interest on that debt.

Crowd2Fund's latest published accounts state it believes it can keep going till at least the end of May 2025 through “private funding” from its shareholders.

However, with that funding not in Crowd2Fund's coffers at the time of those accounts, its auditors were obliged to log that there is “material uncertainty” that Crowd2Fund can carry on for that long.

Strategising its way out

With its debts outweighing its cash and other assets, and £7 million in losses since it started, and with latest published revenue being just £300,000 while latest published costs are over £1 million, this is not good.

Crowd2Fund's plan to finally turn the business around relies on an awful lot turning out right. The thing is, it has reported cost cutting and restructuring, and new or changed boards, more than once. To no avail. It has also been innovative in its products, but nothing has gained traction.

It's at times like this when you can expect the PR machine to sit up and try to convince us all that this time it's different and that it really is turning things around. I really hope so, as I think they're good people at Crowd2Fund.

But dreadful company results for most of its history have not shown any signs whatsoever of improving and don't reflect the healthy trajectory of a startup on the way to stable profitability.

What should lenders do?

With such little money being lent through Crowd2Fund, most lenders aren't involved with it currently, or they only have small amounts in Crowd2Fund loans.

The protections for lenders when a platform goes out of business are pretty good if you trust that the business has been run and administered in practice as correctly as it was on paper. That's not least because you're lending directly to the end borrowers and not to Crowd2Fund.

Also, although Crowd2Fund has never responded to our own deeper investigations into its plans in the event of a wind down, it does publish a brief outline on what happens in a “hard” wind down here. Also, the regulator will have reviewed these plans, as it has been taking such planning more seriously in the past 18 months or so.

But history shows that even in a platform that has been operated correctly, it's not smooth going every time that one has to wind down, e.g. your costs can sometimes rise and sometimes you can face delays in getting your money back.

The more risks you see in a lending account you use, the less you should try to lend through it compared to other accounts. If you're overweight Crowd2Fund, you can try to level it out by discontinuing autolend and even attempting to sell some loans, which is fee free.

When selling loans, you set the amount that a new lender has to pay you to get your loans off you. But that price range is strictly limited, which mean you don't have to think hard about whether to discount the loans, sell at their original value, or sell at a premium.

Bear in mind that, if you choose to sell loans before they're repaid, you'll earn less money on those loans and potentially decrease your overall performance through Crowd2Fund. That's simply because you'll no longer earn interest on good loans after they're sold.

If you successfully sell some of your good loans (and not all Crowd2Fund loans are allowed to be sold, even if they're in good standing) it increases your chances of an overall poor performance with your Crowd2Fund lending, as you'll be left with your worst performers. Those loans will no longer be offset by continuing “good” interest.

To make up for that, you'll need to quickly lend or invest elsewhere, so that you continue to get a return on that cash you get back.