UK is one of the most established and promising markets for alternative finance worldwide. Since 2011 online equity investing platforms have launched and financed businesses at an estimated total value of £84 million, according to the research published by Nesta at the end of 2014. However, data on the performance of the funded companies is still lacking, especially because the sector is still deemed not mature enough to provide reliable data.
However, last week, Altfi Data, a research consultancy on alternative finance in the UK, released a report framing the state of companies that have to date raised money in the UK through the medium of equity crowdfunding. Although, as previously mentioned, the sector is still too young to provide meaningful data, the Altfi’s analysis can be read as an approximation of the performance of equity crowdfunded companies in the UK.
The analysis was conducted focusing on 5 major British equity crowdfunding platforms, for a total of 367 platforms that have been financed on these portals to date. In particular 82 were successfully financed in 2013, which, according to the authors, is a statistically significant sample, as enough time has passed since funding to allow business plans to have been executed.
The first figure that catches one’s attention is that four companies out of five that have been financed through online investing is still on business. On the contrary 28% of the interviewed companies has failed or it is showing signs of difficulty. 22% of the sample, instead, have gone on to either raise further funds at a higher valuation or have realized a return for investors via a successful exit. This latter figure would probably be rosier if it included follow on investments received offline by angels or other professional investors.
The research also highlights that the average volume of single equity crowdfunding campaigns has been steadily increasing since 2013. The internal rate of return on equity crowdfunding investments via the five major platforms since February 2011, instead, averages just 2.17 per cent. However, the authors estimate that, assuming that SEIS and EIS tax reliefs are fully utilised, that return increases to 33.79%.
Although, valid and reliable data are still difficult to obtain in such a young industry, this is a good first temptative of shedding some light on the trends and performance of companies finance via online investing, in order to understand better the impact of this new source of finance on local SMEs.
Weeks, R. (2015).The Real Data on Equity Crowdfunding Performance. Altfinews
Barret, C.,Ravonick N. (2015).One in five UK crowdfunding investments fail. FT.com
Photo credit to: Ralph .
About the author - Irene Tordera
Born and raised in Milan, Italy, Irene is an International Business graduate, with a strong interest for innovative ideas that can simplify our lives.
During her studies, she co-founded an online community for sportspeople and worked in marketing positions at Ogilvy & Mather Advertising and at the European Business Angel Network, in Brussels. She is a passionate blogger about crowdfunding and the startup ecosystem and she works also for the European Crowdfunding Network.