As a disruptive and evolving means of raising capital, financial pundits have written a myriad of think-pieces on the long-term viability of equity crowdfunding. Amid the sensational headlines that have been commonplace in 2016, significant advancements in the domain of equity crowdfunding have taken place. The plethora of research undertaken as to failure rates and long-term crowdfunding successes reveals interesting insights, which Invesdor has collated to bring you an industry state-of-play.
The failure rates of equity crowdfunding companies – according to the experts
We’re familiar with the dispiriting figures that form conventional wisdom surrounding startup success - 90% of startups fail. 50% of all businesses fail in the first five years. 40% lack the market need for their product. But what research exists for the equity crowdfunding industry alone? Collating its extensive survey findings with Company House filings, AltFi Data released a report at the close of 2015 on those 367 companies that had raised finance through equity crowdfunding. The extensive report is a distinct rebuttal to industry sceptics, as it finds that, of those companies funded between 2013, 80% were still trading. 2015 witnessed an enormous growth in the overall size of campaigns, and 2016 saw the highest first quarter for dollars invested since 2000. Research firm Beauhurst has likewise compiled research on issuers raising capital via equity crowdfunding.
“According to the data at least – crowdfunding may be turning into a form of fundraising far less risky than anyone could have predicted.” – The Beauhurst Report
It concluded the levels of risk traditionally associated with equity crowdfunding have significantly diminished in recent years, as failure rates fell dramatically, reaching an all-time low in the UK. 2015 actually saw the failure rates for crowdfunded startups become lower than the rate for non-crowdfunded startups, and the average failure rate. The rates differ significantly between 2012 and 2015, as the industry has evolved to solve its teething problems, and adopted strengthened due diligence policies, and becoming an altogether safer alternative. A market-wide confidence can be seen in increased funding not simply among seed-stage but also established and growth businesses. But how has this boon of the industry manifested itself for investors and entrepreneurs alike?
The industry leaders
Meanwhile, successful exits have become an exciting feature on the equity crowdfunding landscape with cyber-security company Fireblade being acquired by Stackpath for around $20 million, a big development for the Tel Aviv based firm. The crowdfunding platform responsible for the raise has even created the position of Chief Exit Officer, a first for the crowdfunding industry. This follows the first successful crowdfunding exit which occurred last year, as E-Car Club was acquired by Europcar. European governments are keeping apace with the rapid expansion of the industry, evident by the UK’s acceptance of submissions on the FCA amendments, and by Sweden’s establishment of Commission investigating equity crowdfunding. Announced by Finance Minister Per Bolund, the commission is aimed at improving conditions for emerging companies and crowdfunding platforms in the country.
Invesdor’s raises have demonstrated the breadth of possibilities for not only entrepreneurs but also established companies with equity crowdfunding, as recent success stories like Cityvarasto, Finland’s largest self-storage company, and Heeros Systems, the digital financial management pioneer, both exceeded expectations. The former was Finland’s biggest ever crowdfunding raise, at €1,008,385. The spike in raises since the MFiD accreditation of Invesdor has been a boon to the platform, and as the first EEA-wide regulating crowdfunding platform, it is able to tap into vital industries and game-changing companies across Europe. Ahola Transport, the EU-wider rapid road transit service, operated its IPO recently with Invesdor. Similarly, Siili Solutions opened up the main markets with its equity offering, providing us with the opportunity to unite retail investors and Nasdaq natives. As regulations worldwide broaden to keep abreast of developments in equity crowdfunding, companies are able to attract new varieties of investors who have authored these crowdfunded success stories.
As alternative finance presents itself as an increasingly viable means of funding, offering a borderless, broad array of investment opportunities, backed up by the aforementioned success stories, the industry has entered the next stage of growth. The industry grew 84% in 2015, to £1.74 billion in funds raised across Europe alone. The diminishing failure rates and improved legislation for crowdfunded companies bodes well for the continued evolution of the industry.
Richard Andrée Wiltens is a commentator within the fintech sector, who has written for an array of international investment platforms. His career has spanned from investment banking to financial technology firms, backed by an education in economics and finance.