Posted on 3rd December, 2015
Posted on 3rd December, 2015
by James Codling
Co-Founder & MD
Crowdfunding is starting to grow up
The ‘Where are they now?’ Alt-Fi Data report shows just how much the alternative investment market has evolved. From 2011, when a small number of consumer goods focused companies sought funding from the crowd in order to drum up publicity and acquire brand ambassadors, the market has grown rapidly to the point where, in 2015, we are now seeing more mature, ground-breaking companies in industries such as finance, IT and media also turning to equity crowdfunding to raise capital. As the market gains momentum and more companies are raising funding on equity crowdfunding platforms with bigger ticket sizes and more sophisticated investors backing them, we now have a decent sample size to begin to start analysing the market and its successes and losses.
The report draws the conclusion that the crowdfunding market is indeed maturing and its growth is not something to be ignored. 80 per cent of crowdfunded companies are still trading and, contrary to popular belief, the industry isn’t just funding startups – the average age of businesses raising funds is 2.91 years old. However, with increased momentum comes increased responsibility.
The report lays out the need for best practices to become the norm across the board, with a particular focus on the need for transparency.
The relationship between platforms and the companies they fund
VentureFounders wholeheartedly supports these recommendations and in fact it is something we have been repeatedly calling for within the crowdfunding industry. One of the main barriers to this transparency is defining where the ownership of disclosure lies. There is no doubt that platforms should be able to update investors on their investment portfolio’s track record, but this is impossible if they are not receiving this information from the companies they have helped fund, post-raise.
Therefore, it is imperative that platforms have strong ongoing relationships with the businesses they fund to ensure that investors can be continually updated with their portfolio performance - Companies House data is not enough on its own. Investor protection goes hand in hand with transparency and we advocate a nominee structure, which allows our investors to be represented as one entity, giving them a large, collective voice amongst other shareholders in the investment. This means we have access to the same performance data and company updates as a large shareholder so we can provide our investors with the full details of their economic interests in the business on an on-going basis.
Keeping on track with new industry standards
Transparent track records allow investors to make an informed choice about the platform they choose to invest through. At VentureFounders we believe that while the report has great recommendations, the industry needs to put in formalised reporting standards in order to increase transparency through consistent, reliable data.
VentureFounders is keen for further regulation in the equity crowdfunding sector as we believe this will help boost the image of the alternative finance industry and in turn increase investor confidence. We would also like to see more realistic valuations in the future as there has been a worrying trend in recent months towards more consumer facing brands using crowdfunding to push valuation boundaries. As the sector matures, we will see more data readily available to investors so they can make accurate, informed decisions.