New data from the UK suggests equity crowdfunding has been a bust since launching in 2011, reminding advisors on this side of the pond how they can add value for clients looking to invest in private capital
Crowdcube, the largest equity crowdfunding (ECF) platform in the UK, has just reached the $200 million mark after just four years in existence. The problem, says one UK skeptic, is that none of the 300 companies receiving backing have returned money to investors despite an implied promise to do so.
“To date investors in all the UK ECF platforms have lost in excess of £5m [$10 million CAD]. Without fail, pitches on a platform like Crowdcube promise returns in 3 or 4 years, so we really should be seeing some by now. There is absolutely no evidence that that we will,” wrote UK crowdfunding skeptic Rob Murray Brown in a blog post for UK financial website Finance Magnates. “Our research, based on Crowdcube and a few pitches from other sites since 2011, shows that 99.9% of the companies that have raised money this way have missed their projections for all years since. Some have missed them by over 1000%.”
In Brown’s opinion, equity crowdfunding’s been an abject failure at a time when small- and medium-sized businesses could really use the capital. He’s going as far as to suggest the UK should adopt a model similar to the Australian Small Scale Offerings Board (ASSOB), which he believes undertakes a far more rigorous vetting process.
“The reality is investments done on early stage equity platforms like CrowdCube or SeedUps are venture investments and should be treated as such,” SeedUps Canada CEO Sandi Gilbert told WP. “These are usually relatively small investments (the average on our platform now is less than $10K) and the investor should be able to ‘put his share certificate in a drawer’ and wait to see what happens.
“We always say 5-7 years is typical exit period (good or bad). The investor is investing a small portion of his portfolio in these high risk ventures because they have a passion or connection to the business.”
The validity of Brown’s criticisms aside, the industry here in Canada, is likely to view the emergence of equity crowdfunding here as one more opportunity for advisors to educate and add value with clients as a way of protecting investment.
“To date investors in all the UK ECF platforms have lost in excess of £5m [$10 million CAD]. Without fail, pitches on a platform like Crowdcube promise returns in 3 or 4 years, so we really should be seeing some by now. There is absolutely no evidence that that we will,” wrote UK crowdfunding skeptic Rob Murray Brown in a blog post for UK financial website Finance Magnates. “Our research, based on Crowdcube and a few pitches from other sites since 2011, shows that 99.9% of the companies that have raised money this way have missed their projections for all years since. Some have missed them by over 1000%.”
In Brown’s opinion, equity crowdfunding’s been an abject failure at a time when small- and medium-sized businesses could really use the capital. He’s going as far as to suggest the UK should adopt a model similar to the Australian Small Scale Offerings Board (ASSOB), which he believes undertakes a far more rigorous vetting process.
“The reality is investments done on early stage equity platforms like CrowdCube or SeedUps are venture investments and should be treated as such,” SeedUps Canada CEO Sandi Gilbert told WP. “These are usually relatively small investments (the average on our platform now is less than $10K) and the investor should be able to ‘put his share certificate in a drawer’ and wait to see what happens.
“We always say 5-7 years is typical exit period (good or bad). The investor is investing a small portion of his portfolio in these high risk ventures because they have a passion or connection to the business.”
The validity of Brown’s criticisms aside, the industry here in Canada, is likely to view the emergence of equity crowdfunding here as one more opportunity for advisors to educate and add value with clients as a way of protecting investment.
