A recent report from data company Beauhurst reveals a slowdown in crowdfunding deals for the first time since the birth of the sector, with 22 per cent fewer completed deals in the first half of 2016 than the year before. Critics may foresee a burst bubble, but proponents of the space expect this to be a passing pre-Brexit hiccup 

According to Beauhurst, 557 deals were completed and announced in the first half of 2016, a decrease of 22 per cent from the second half of 2015. In the run up to the EU referendum, crowdfunding deals were down 17 per cent period on period to 158.

This is the first time since the term crowdfunding was coined that the sector has seen a decline in deals.

Beauhurst’s official stance is that uncertainty over the EU referendum had a huge impact on investor confidence in the first half of the year.

With the UK already having lost its AAA credit rating, and UK banks being downgraded by Moody’s over fears about Brexit exposure, it is understandable that investors may be itching to diversify while the negotiations take place.

According to Julie Palmer, partner at independent insolvency firm, Begbies Traynor, investor confidence may be shaken more in construction and real estate following the Brexit vote, with many high profile investors pulling out of UK property over the past three weeks. “With experts predicting that London property prices could plummet by as much as 20 percent and nearly 50,000 firms in this sector already suffering from ‘Significant’ financial distress, the foundations for this sector are looking decidedly shaky,” she explains. 

“It was expected that market instability created in the run up to Brexit would have an impact on equity fundraising, so the recent report does not come as a particular surprise,” comments Chris Dyson, partner in the corporate team at Ashfords LLP.

Dyson believes it is way too early to call the decline a trend. “Crowdfunding remains the most accessible route to early stage investment and continues to mature as an industry. Interestingly, the report identifies that the volume of deals has fallen more sharply than the value of deals, indicating that the crowd may be investing more selectively,” he explains. 

Although Beauhurst noted that fewer individual investments are being made, the average deal size is growing. Deals under £250,000 declined by almost a third, while deals over £10 million increased in frequency.

Investment from institutional investors like venture capital firms and private equity houses is at the lowest levels since the beginning of 2013. To complicate things, over 61 per cent of equity deals in this period were never made public, suggesting that further deals may be discovered later in the year. 

“In terms of venture capital, whilst the results suggest there may have been a brief stall, funds are continuing to raise and invest. There may be some markets which are impacted because they are now considered higher risk, but the capital is there and VCs remain keen to invest in good opportunities,” Dyson adds. 

In the grand scheme of things, crowdfunding still dominates the investor charts, according to the research. Beauhurst also revealed that crowdfunding platform Seedrs has a 50 per cent share of the UK equity crowdfunding market in 2016, with 78 funded deals at the halfway point in 2016. Seedrs has seen exponential growth in this period, increasing from 55 deals funded during the same period in 2015, and 43 deals funded in the first half of 2014.

Seedrs CEO and co-founder, Jeff Lynn asserts that the company has yet to see an impact post-Brexit. “We haven’t seen a notable slowdown since the referendum in spite of fear mongering around the country. The UK is still attractive and safe for inward investment and will continue to be one of the number one destinations for entrepreneurs to set up a business with its favourable tax reliefs, streamlined business incorporation and simple transport abroad,” he says. 

Looking to the future, investors aged 18 to 34 were even more likely to back small to medium sized businesses, according to a survey of 1,000 investors by IW Capital. 70 per cent of the respondents of that study stated they would invest in SMEs in the current climate, suggesting a possibly upswing in crowdfunding deals in the next half of 2016.