How digitalisation helps private investments

The European Commission has stated that the digital economy is “the single most important driver of innovation, competitiveness and growth, and it holds huge potential for European entrepreneurs and small and medium-sized enterprises”.

The digital economy is a term that excites those within the alternative finance industry and governments looking to jumpstart their economy through innovative means – but what does it truly mean to be living in a digital economy?  The proliferation of online tools as a means of managing finances and investment has soared in recent years – we’ve even witnessed the emergence of the first crowdfunded bank, Mondo. Undoubtedly, consumers prefer the ease and relative transparency of the platforms at their fingertips to take care of financial concerns that have hitherto been put upon a third party.  Today, Invesdor examines the real impact of the digital transformation of our economy, and how they benefit investors and the alternative finance industry as a whole.

The European Commission has stated that the digital economy is “the single most important driver of innovation, competitiveness and growth, and it holds huge potential for European entrepreneurs and small and medium-sized enterprises”.  Not only do digital businesses create new employment opportunities – with over 3 billion people worldwide connected to the internet, and 1.5 additional jobs created in the EU owing to the economy – they transform the way we operate. 

When Facebook bought Oculus for $2.4 billion, there were misgivings in some corners that the individuals who had crowdfunded the company saw zero payout from its staggeringly large acquisition.  The model of rewards-based crowdfunding had its limits.  Now, with equity crowdfunding, the same online platform that witnessed such unprecedented activity from an array of individuals has been harnessed to empower them as investors. Investors no longer have to consult advisors or management companies if they are looking to make investments – with mobile access, they have the full range of crowdfunding projects literally at their fingertips, taking the crowdfunding sector into the mainstream.  They have 24/7 access to the latest social enterprise, cross-border initiative or innovative Fintech company looking for retail investors. Moreover, the traditional, cumbersome barriers to an investment are jettisoned, meaning the fundraising process is quicker than ever before.  This results in lower costs for both sides – management consulting fees are done away with and there is no charge involved with becoming a member of an online platform, all you need is an internet connection.

Similarly, the online nature of private investments in 2016 invokes a more transparent economy, where companies are more accountable and prospective investors have access to financial statements and essential information online.  The highly public nature of equity crowdfunding campaigns is likewise a deterrent for fraudulent activity. The longer cycle and time-investment required by seeking VC investment could be a thing of the past.  Traditional financial institutions demand so much time from potential clients – retail investors opting to use equity crowdfunding can do so with a few clicks, and therefore don’t have to be among the few wealthy enough in time and money to sit down for repeated VC meetings.  Moreover, registered investors with online platforms are given immediate and convenient access to business plans and in-depth information on companies, based on verified data, to ensure they’re making an informed decision. Again, all of this can be achieved by scrolling on a smartphone.

The removal of traditional investment costs, transparency, and efficiency of the digital nature of equity crowdfunding is good news for first-time or inexperienced investors. Now, those who want to start an investment portfolio are able to, without having to navigate the red-tape heavy and outdated waters of the traditional investment process. We are truly living in a digital economy, and the equity crowdfunding industry boom is a testament to its saturation.

 

Guest blogger
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.