Innovative platform Crowdbase helps make Cyprus crowdfunding a reality

Crowdfunding is not a new concept but it’s taken more than 20 years for it to become a reality in Cyprus, thanks in part to Crowdbase, an innovative platform that provides an alternative form of financing to entrepreneurial startups, innovative small-medium enterprises and socially impactful projects. Frixos Larkos, Managing Director of Crowdbase, explains how it works.

The first time I heard about Crowdbase was December 2022, when I read about easyBoat, a startup founded by Greek entrepreneurs Alexandros Nastos and Simos Lalagkos with Sir Stelios Haji-Ioannou as the lead investor. This was the first ever equity crowdfunding campaign in Cyprus and is still viewed by many as a historic moment for the Cypriot entrepreneurial ecosystem. Crowdbase raised almost €470,000 (well over the initial €250,000 target) from 141 investors. “It was our first campaign and it was very successful!” Frixos Larkos, Managing Director of Crowdbase, recalls. “They came to us; we liked the idea of easyBoat and they liked the idea of crowdfunding, because the ‘easy’ brand is essentially about providing affordable, practical solutions, accessible to a lot of people, so it shares a lot of values with crowdfunding. The business model of easyBoat is very similar to booking.com, or Skyscanner, but for a new industry: yacht chartering. The easyBoat team and Sir Stelios Haji-Ioannou are very experienced – they have the background in yachting and tech – so we were sure that they had the skills to deliver this project.”

Larkos learned about crowdfunding and its impact on markets such as the US, the UK and Israel after being involved in the failed first tender offer for the Cyprus Equity Fund. “I realised that there was a great need for funding by innovative businesses in Cyprus and I thought that crowdfunding could be the way to bring investors and the people needing capital together,” he says.

That realisation led Frixos Larkos and his partner Daniel Koudouna to found Crowdbase (in October 2020), which, simply put, enables ordinary people to invest in a business. “Anybody can invest in a startup with as little as €100,” he explains, “whereas, in the past, before crowdfunding, investment was only accessible to High Net Worth Individuals and angel investors who needed to put more than, say, €100,000 into each startup. Crowdfunding essentially makes investment accessible to the people.”

So, this is the democratisation of investment? I ask.

“That’s exactly what it is,” he says, smiling broadly. “This has been a trend for the past 5-10 years. Thanks to improvements in technology and regulation; there has been a movement away from big investments to giving more control to ‘day-to-day people’, who can manage their money and invest wherever they want to,” he says and adds. “The main source of revenue for Crowdbase is the commission earned on the crowdfunding campaigns if they’re successful, which is around 7% for equity crowdfunding campaigns, combined with other ad hoc work we take on as a company. Our model is focused on equity crowdfunding: a lot of people come together, they pledge an amount that they want to invest and we at Crowdbase put all the money together. Once the campaign has reached its minimum target, that money is transferred to the company, which then issues new shares to the investors. If the campaign doesn’t manage to reach its minimum target, the money is returned to the investors.”

The invention of Internet-based crowdfunding is usually attributed to Jeffrey Pelletier who, in 1997, created the Marillion Tour Fund for which fans of the UK progressive rock band joined together to pay for Marillion to go on tour in North America. It later led to the first album pre-order campaign, conceived by Marillion’s keyboardist Mark Kelly, by which fans pledged sums of for the recording of the band’s 2001 album Anoraknophobia and were rewarded by having their names printed in the credits of the limited-edition version.

A quarter of a century on, crowdfunding in Cyprus is still in its infancy. However, the European Regulation on European Crowdfunding Service Providers (ECSP) introduced in 2021 is expected to take the industry forward. “This is a new kickstart for the crowdfunding ecosystem in Europe. I expect to see a lot of growth both in Cyprus and in the rest of Europe,” Larkos tells GOLD. “Other Western economies are much more ahead of us and crowdfunding is almost mainstream in many of them, especially the US which has a thriving startup and innovation ecosystem and where people are also more familiar with the concept of investment. That’s another problem we have here” he says and pauses before he tells me: “We lack the investing mentality.”

Apart from the fact that many Cypriots lack financial education and falsely associate investing with gambling, the hard lessons learnt from the 2009 stock market crash, the subsequent global financial crisis and the 2013 near-collapse of the banking sector have deterred many from investing. So, are we afraid to invest? I ask. Yes, he says but notes that the younger generation has grown somewhat bolder. Those who delve into investment are predominantly men aged 25-45 who tend to be quite familiar with technology.

The timing of any venture is crucial and a great idea at the wrong time will most likely fail but Crowdbase does not wait for the planets to align in order to launch a campaign. It carefully examines the prospects of success, the reasons why a company has approached Crowdbase, the specific problem it is trying to solve and how to implement the solution. Larkos explains that market potential, size, growth and competition are also examined to determine if the business in question can become something substantial. “We look at the company’s business model and we assess the team, which is perhaps the most important factor when we’re discussing with early-stage companies, which often don’t have a track record to showcase, to see if they are the right people to deliver this new venture. We look at the company’s financial projections to understand if the numbers make sense in the long term and, lastly, its vision. These are the main factors that we’re looking at when we choose a campaign.”

Surveys have shown that there is now a worldwide tendency towards investment in socially impactful projects that take people’s wellbeing and environmental protection into consideration, such as renewable energy.

Crowdbase offers investment-based crowdfunding, which is Equity and Debt crowdfunding. When it comes to the type of campaigns people prefer, debt crowdfunding – where companies borrow money from investors and repay them over time with interest – come second, whereas equity campaigns take the lead, Larkos tells me. “With equity campaigns people feel more engaged with that venture or project; they feel that they own part of it,” he says. “People like high-growth startups, specifically those in the tech industry, which can expand and scale very fast and can go beyond the borders of Cyprus with ease,” he adds, before clarifying that other sectors are also becoming popular: “Although we haven’t done one yet, we see a lot of demand for real estate crowdfunding, which would essentially allow people to invest in the Cyprus real estate market with a small amount of money. Everybody knows what’s going on in Limassol – prices are skyrocketing and need to make an investment of at least €200,000-€300,000. But with real estate crowdfunding, you would be able to invest a much smaller amount – €1,000, €500 or even €100 – by dividing a project into shares.”

I can’t help but wonder if Larkos practises what he preaches and I ask him directly if he has ever invested through crowdfunding. Yes, he says, he has invested through some UK and US platforms but he admits that he was concerned about a lack of transparency as regards the company’s performance. “You’re mostly leaning on the idea that you like a particular product/service so you support it. But, as a financial professional and as an investor, I like to get down to the nitty gritty of the numbers, which were often lacking in detail. So, although I liked some of the ideas, I felt a bit uncomfortable. Obviously, on our platform, we want to be as transparent as possible, showcasing all the financials and projections and explaining how we derive the numbers that we showcase,” he says and adds. “I think that it’s very important to avoid the past mistakes of the financial system. Being transparent should help that or, at least, make sure that if this industry is going to grow, it will be from good fundamentals.”

Crowdbase plans to become a Pan-European crowdfunding platform, expanding beyond Cyprus into its first target markets of Greece and the countries of Eastern Europe, where crowdfunding is not yet so developed.

When Frixos Larkos left London where he worked because he wanted to do something on his own – that idea became Crowdbase – his plan was that, by the time he was in his 30s, he would have decided what he wanted to do and would be on his way to achieving it. Today he is still only 28 and, understandably, a very happy man.

(Photo by TASPHO)

This interview first appeared in the May edition of GOLD magazine. Click here to view it.