Alarm bells for crowdfunding as bubble pops for soap start-up

July 31, 2013 6:16 pm

Alarm bells for crowdfunding as bubble pops for soap start-up

By Lucy Warwick-Ching, Tanya Powley and Elaine Moore

One of the first companies to raise money via crowdfunding in the UK has ceased trading, sounding alarm bells for investors in what has become one of the fastest growing investment areas in the country. Bubble & Balm, a fair trade soap manufacturer, was the first start-up to raise money via equity crowdfunding platform Crowdcube, in 2011. It raised £75,000 in return for 15 per cent of the company’s equity from 82 investors, who contributed between £10 and £7,500 each. As part of the deal investors were also in line to receive free soap and discounted products.On Wednesday, however, the company asked Companies House to be struck off and its website, Twitter account and Facebook page have been taken down. It was not possible to contact Bubble & Balm.

It is a blow for the crowdfunding industry which has experienced rapid growth in recent years with more than £1bn raised through these type of platforms in the UK over the past three years.

Luke Lang, co-founder and director of Crowdcube, one of the biggest sites, said he was disappointing for investors and for Sue Acton, the founder of Bubble & Balm. “When Sue raised the funding the company was in a strong position – it had secured contracts with both Waitrose and Oxfam to sell its products. It’s unfortunate that she has become a victim of the economic downturn.”

He said, however, that companies failing is the nature of business. “What has happened to Bubble & Balm is a good example of the need for people to diversify their portfolios and spread their money around,” he said.

Crowdfunding allows investors to pool their resources to help fund a business or project, and share in the spoils of its success. They are able to inject funds into new and growing businesses without having to commit large sums.

Goncalo de Vasconcelos, chief executive of the crowdfunding platform SyndicateRoom, which tries to mitigate the risks for investors by only allowing them to buy into companies backed by business angels, said: “Anyone who finances start-ups via a crowdfunding platform should be aware of the high risks attached to the investment they are entering into. This symbolic failure highlights those risks.”

The news comes as crowdfunding continues to grow in popularity. Kevin McCloud, presenter of the Channel 4 programme Grand Designs, is attempting to raise a minimum £1m through Crowdcube to expand his property development business – Hab Housing – into the custom-build sector. In return, investors will own around 13 per cent of the business.

Fund manager Nicola Horlick also reported on Wednesday that she has raised £150,000 through crowdfunding website Seedrs in less than a day. Some 136 investors participated in the funding for her Glentham Capital venture, which initially will provide finance for Hollywood films.

The FCA has warned that crowdfunding should only be targeted at sophisticated investors who understand the risks involved. The sector is not yet regulated, although a trade body was set up in March which has issued a code of practice for members.