"The crowd as a whole is smarter than any single person"

Paul Higgins was a consultant with Rapid Innovation Group from 2005 to 2012, when he left RIG to co-found Crowd Valley. Crowd Valley provides the platform and back office services for crowd funding, peer to peer investing and alternative asset marketplaces for securities professionals. We caught up with Paul to find out more about Crowd Valley’s growth and his views on crowdfunding.

Why should a customer choose Crowd Valley as a platform?

Crowd Valley is a spin out (of Grow VC) which has been going since 2008. We have been involved in the sector since before it all began really.

Grow VC was the first global equity-based crowdfunding platform and it served as a real proof of the concept of crowdfunding in diverse countries across the world.

$3 million has been spent on the product over 5 or 6 years and we have conducted a lot of Beta testing with partners which means that the platform is stable enough to offer to customers. No one else is in the position of having so many years of trying and trying again as our group.

Technology is only a part of it; it’s a prerequisite. We’ve been involved in advising governments and regulators around the world and customers appreciate that. It means that we’re able to offer guidance as well as providing a tech platform.

How did Crowd Valley come about? Why did you see a need to spin it out of Grow VC?

Grow VC started in 2008 and we ran what is now Crowd Valley out of there for a few years. We had an interesting model based out of Hong Kong, with a few financial structures to make it work. The question was always: “how can you grow something into a world class company given the regulatory restrictions around the world?”

Could we license the software out? Could we have a company represent Grow VC? This is actually what happened in India and China and we licensed the product there for a while. Grow VC eventually pulled out because it became too complicated to maintain the technology as separate installations.

So we rethought things again and built the software again so that everything would run on the same central infrastructure, allowing people to operate their own platform.

The real impetus was the JOBS Act and we realised this area was going to be quite a big deal. Crowdfunding hadn’t received any US government approval before then and we didn’t know whether it would continue to be banned in the US or not. When we realised it was going to be big, we wanted to be ready so we created a separate holding company to deal with that.

Grow VC has continued to spin out different financial companies to deal with different areas.

Where do you see Crowd Valley in 3 years’ time?

If you include all the customers we took on last year during Beta testing, then we’re working with hundreds of companies around the world, spread over five continents. So we have a big presence already.

Over the next few years, we need to improve the usability of the product. We would like to see some of the most successful crowdfunding operators in the world using our platform.

We are also interested in connecting people in lesser known markets, as that type of thing is still important. We’re trying to build something which provides different methodologies for investment.

In 3 years’ time there will be a clearer set of regulations and more countries who will have come out with their own set of regulations.

Do you think equity-based crowdfunding is better than rewards-based crowdfunding?

There’s space for both as they’re not really competitors. They’re useful for different industries and scenarios.

Kickstarter has given crowdfunding such prominence in the media and it was able to get started much faster because it required no regulation and worked much like donation websites such as JustGiving.com in the charity sector. Rewards based crowdfunding appeals to the public because it has an endpoint; an output, and is generally used to fund arts and cultural projects.

One of the first things invested in via Grow VC was a green showerhead in Australia. They had their prototype but no distribution or distribution facilities. They needed $100,000 and the equity-based approach was their only option as they were operating in an area where the general public don’t really understand what you’re doing because it’s fairly hi-tech, and there’s nothing to give away as a reward.

The “democratic market” concept is fairly prominent on your website. Is it something that you came up with?

It’s a market where people decide “what’s good” and “what’s bad”. Financial markets usually have a middle man controlling the information and the access to buyers and sellers. You need a middle man otherwise there’s no way for buyers to engage with sellers; like banking.

10-15 years ago you weren’t able to check your balance or make a transfer without going into a branch and talking to someone face-to-face. This is essentially still how the investment world works, even though the rest of the banking sector has already moved on.

The crowd as a whole is smarter than any single person. The Crowd can evaluate as you go which provides more validation than any single person.

Crowdfunding seems to be providing new sources of investment for companies which might otherwise have struggled to secure funding. Mike’s Fancy Cheese recently managed to raise £80,000 from 100 different investors on Seedrs. So is crowdfunding here to stay?

Mike had apparently already collected a load of potential investors and Yorkshire’s leading cheese manufacturer had decided that his company was the future of cheese. Cheese is also something that people understand because it’s not hi-tech.

The crowdfunding platform still provides an opportunity to connect people who know about a niche market. It’s a much more efficient way of securing investment and is less likely to fall down. Much more financial systems are moving to models like this so I don’t see why anyone would go back once you are able to do this.

Roughly 45% of Americans don’t invest in a pension scheme. Do you think crowdfunding will provide more options for people considering their long term financial security?

It will give them another option I suppose. In a lot of the customer cases we’re seeing at the moment, people don’t see crowdfunding as an alternative to other forms of investment.

A pension scheme might use a crowdfunding platform like ours to maintain a better relationship with their customers. I don’t see it changing how people invest because if you invest $1,000 over 40 years, you might get one or two great companies, but it isn’t going to be transformative.

I suppose the whole process of investing has been made easier to understand. Whether it’s real estate or shares, people will start getting used to investing and used to doing it online so it will be interesting to see how that plays out.

The biggest change that the JOBS Act will bring is that you will be able to advertise the fact that you’re looking to raise money. Right now, if you tweet or advertise that you’re looking for investment then you can get into trouble with the SEC. Once that part of the legislation is finalised, we might see a situation where anyone will be able to write on Facebook, Twitter, advertise on the Metro etc. People might see that type of advertising and decide to invest. Whether or not that convinces people to start investing in different things, not just pensions, remains to be seen.

And finally, on a completely separate note, what is your favourite song and why?

I used to be a DJ once upon a time, when I was at Cambridge. I used to run these nights in Cambridge and arrange trips down to London. The music I always used to play was House; people like Masters at Work, during the early 2000s.

There was this movement called Africanism which tried to get African and American beats into House music and people like Bob Sinclar were instrumental in this. It was round about when David Guetta got really famous that I decided to check out.

So based on that, my favourite song is Madan by Martin Solveig.