Equity Crowdfunding – what’s the payback for investors?
It’s fairly obvious for us to say we’re big fans of equity crowdfunding. But that doesn’t mean we’re blind to the risks – far from it in fact, our website has many risk warnings and points out the need to diversify investments. This is because we believe it is right to point out the investing in start-ups is risky. It’s an ethos thing, not just an FCA regulation thing. But without doubt, there are many, many positives or we wouldn’t have raised more than £12m for 60+ UK businesses.
So, now we’ve made our interests and the potential risks clear, let’s get back to the subject at hand: what’s the payback for investors?
As things stand, there isn’t enough data to make claims about possible returns from equity crowdfunding investments. The industry is just too young for there to have been multiple exits to analyse. However, parallels can be drawn between angel investing and equity crowdfunding; investors find businesses they like, put money in, get equity back and, hopefully, get a great return upon exit. And there’s some solid data on angel investing thanks to the Nesta/BBAA ‘Siding With The Angels’ report (PDF link).
So what do the headline figures look like…
– 56% of exits fail to return capital – boo!
– 9% generate more than ten times the capital invested – yay!
– 44% of investments generate positive exits that are larger than the cost of exits – hmmm…
– Overall return on UK angel investing is 2.2 times the invested capital – WOW!
Whichever way you look at it, 2.2 TIMES the capital invested is a serious return.
Of course it’s not guaranteed – previous returns do not always indicate future performance and a diversified portfolio is critical (which is why we recommend a portfolio of 10 or more investments). But even so, it’s an ROI that should make people and regulators take notice.
If you’re looking to diversify your portfolio, take a look at the most recent additions to Crowdcube here.
Looking to raise finance for your next project? Find out how you can make it happen with Crowdcube.
The data: The data is from late 2008 and is based on 158 investors who have made 1,080 investments worth £134 million. So whilst the sample size is limited and a few years old, it’s far from small change.