AltFiDATA | Ryan Weeks | Nov 19, 2015

We now have some insight into the state of companies that have to date raised money in the UK through the medium of equity crowdfunding.

The alternative finance industry is famed for its transparency. However, to put it mildly, there are certain segments of the space that warrant that reputation, and others that do not. The UK equity crowdfunding industry is undoubtedly a force for good in terms of its capacity for channeling much needed funding into the nation’s startup community. But the sector has come under fire during the past 12 months. Investor protections – in terms of the share classes on offer, gaudy valuations, pre-emption rights, and so on – have caused concern amongst industry observers. Perhaps most often evoked has been the issue of opacity. Tracey McDermott, acting Chief Executive of the FCA, was grilled on the alternative finance sector by the Treasury Select Committee a few weeks ago. Chris Philp MP asked the FCA boss for numbers relating to the losses that have to date been suffered by equity crowdfunding investors. McDermott had no choice but to admit that such data did not exist. Were she asked the same question today, the answer would be different.

AltFi Data this morning unveiled the first serious attempt to ascertain the current status of the 367 companies that have (at some point since the industry’s inception in 2011) received funding from one of the UK’s 5 major equity crowdfunding platforms. The FT covered the report launch, choosing to lead with the headline: “One in five UK crowdfunding investments fail”. The flipside of that, of course, is that 4 do not – and that to me seems the more significant angle.

See: 

• Your Input Required: 2015 Canadian Crowdfunding Platform Survey

• The University of Cambridge & University of Chicago Launch the 2015 Americas Alternative Finance Benchmarking Survey

The gathering of industry participants, commentators and press at this morning’s launch event was welcomed by Sam Robinson, a partner at Nabarro, which supported the report. The audience were then walked through the highlights of the report by AltFi Data Co-Founder Rupert Taylor. These included the following:

• Over 80% of the companies that crowdfunded between 2011 and 2013 are still trading.
• The cohort of companies funded in 2013 provides the most representative sample for analysis. It contains enough companies (82) to be statistically significant and enough time has passed since funding to allow business plans to have been executed. In this cohort, 22% of the companies have gone on to either raise further funds at a higher valuation or have realized a return for investors via a successful exit. At the other end of the scale 28% of the companies in this cohort have either failed or are showing signs of difficulty.
• The portfolio return of the industry since inception, measured as an IRR, amounts to 2.17%. Assuming that SEIS and EIS tax reliefs are fully utilised, that return increases to 33.79%.
• AltFi Data sees this report as a significant step forward in allowing the sector to transparently demonstrate both the risks and the returns available from equity crowdfunding.
• Establishing a track record for the industry serves two valuable purposes:
  • It brings credibility and improved profile to this new asset class.
  • It allows investors to asses the historic investor returns delivered by the sector.
• AltFi Data believes that accessing the crowd for finance brings with it an obligation to represent risks accurately by transparently revealing the status of companies that have previously raised money using equity crowdfunding.
• In such a way investors can make a better assessment of the risk that they could lose their investment.

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Download AltFiData's UK Equity Crowdfunding Report (Nov 2015)

The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country.  NCFA Canada provides education, research, leadership, support and networking opportunities to over 1300+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada.  Learn more About Us or visit ncfacanada.org.