AltFi Data released a new report today, looking into the status of businesses that raised finance using equity crowdfunding in the UK. The report examined the companies that used Crowdcube, Seedrs, SyndicateRoom, Venture Founders, Code Investing (previously CrowdBnk), and Angels Den to draw conclusions on the performance of this nascent sector.
This amounts to 955 equity crowdfunding rounds by 751 companies up to the end of calendar H1 2015.
2015’s ‘Where are they now?’ report by AltFi Data revealed that equity crowdfunding was expanding quickly and extensively. This year’s report reveals that while the sector continues to reach a broad spread of industries, further progress on each front is stalling.
The report sets the benchmark for success as delivering a return to investors via an exit, raising further capital (non equity) at a higher valuation, and showing no signs of distress. The proportion of companies that are successes by that definition are yet to stand the test of time. Companies that raised finance through equity crowdfunding in 2012 have fared exceptionally well, with 88 per cent of them hitting these metrics of success. Only 24 per cent of crowdfunded companies from 2011 made the cut, however. The report explains that the sample sizes in 2011 and 2012 are too small to be representative, and equally, not enough time has passed for either the 2015, or H1 2016 sample to have deviated significantly from plan, making it hard to discern too much from existing data.
The report also claims an average industry rate of return for investors of 8.55 per cent. When taking into account the tax reliefs that are available for crowdfunding investors, this figure jumps up to 19.14 per cent, suggesting that equity crowdfunding investments may have the potential to outperform the market.
A common set of rules
According to Crowdcube co-founder Luke Lang, the industry needs to back recommendations for a common set of rules and principles to measure the performance of these businesses. “As the crowdfunding industry matures, we need a unified approach to reporting on the performance of crowdfunded businesses,” he said. “AltFi’s independent and thorough analysis of the UK’s crowd portfolio is certainly a positive step for the industry and one we wholeheartedly endorse. Increased transparency of the due diligence process and ongoing performance of investments is critical for our maturing industry and investor confidence.”
Lang believes that the increasingly diverse range of businesses to seek finance on crowdfunding platforms can no longer be compared with other industry figures on SME failure rates.
From effective disclosures that allow investors to gauge companies more thoroughly, to standardising metrics across all platforms, the report suggests that the industry has a long way to go to be a truly level playing field.