How good are returns from equity crowdfunding?

Recent successful exits inside the equity crowdfunding industry prove the possibility of returns to be greater than expected.

equity-crowdfunding-returns

As the champion of alternative finance, equity crowdfunding has disrupted the financial sphere with its offers of democratizing investment and opening it up to new echelons of investors.  The risk inherent in startup investment has roused skepticism since the beginning,  with industry detractors claiming that only high-risk investors will circle the industry.  Nonetheless, the liquidity of equity crowdfunding, which likewise raises question marks, has continued to attract investors from across the full spectrum of investment.  There is now sufficient research to negate the skepticism surrounding the returns from equity crowdfunding, and today Invesdor looks at the figures. 

 

The Facts and Figures

We know the figures about investing in startups. 90% of startups fail, 50% of all businesses fail in the first five years, and 40% lack the market need for their product.

Following the equity crowdfunding boom in 2014, more research has been revealed that educates how viable equity crowdfunding in startups has become. For example, the AlfFi report on companies that raised finance through equity crowdfunding is definitive, offering a counterpoint to industry scepticism, showing that of those companies who funded since 2013, 80% were still trading. Likewise, last year saw the highest first quarter for dollars invested since 2000.

Finally, research firm Beauhurst has likewise compiled research on issuers raising capital via equity crowdfunding, stating within the report that “according to the data at least – crowdfunding may be turning into a form of fundraising far less risky than anyone could have predicted.”

 

The Winners of Crowdfunding

Recent successful exits inside the equity crowdfunding industry prove the possibility of returns to be greater than expected. For example, when Fireblade, a cyber security firm, was acquired by Stackpath for $20 million, the crowdfunding platform that had facilitated the raise created the (first in the world) role of ‘Chief Exit Officer’. Similarly, the very first successful crowdfunding exit was an enormous one, with UK startup E-Car Club being acquired by Europcar. The first crowdfunding exit via IPO came from Finland with Heeros's listing on the Nasdaq First North Helsinki, however the share price has not changed considerably in the three months since the IPO.

These sorts of successful exits result in amendments to equity crowdfunding regulation, like the UK’s subsequent FCA amendments, or the formation of a committee for equity crowdfunding in Sweden.  The Finance Minister of the latter has promised to improve conditions for emerging companies and crowdfunding platforms alike.  Further, in a deal that Fortune.com described as “the transportation version of Facebook’s deal for Instagram”, General Motors acquired Cruise Automation, a San-Francisco based automated car development company – in the equity crowdfunding industry’s first billion dollar exit.  The deal was celebrated by observers from within the industry as exciting proof of disruptive tech companies opting for equity crowdfunding for Series A and B funding. 

Ultimately, these returns herald the next generation of equity crowdfunding, which now offers tangible returns to loyal investors, and has quelled the initial skepticism that clouded the industry. As a result, the industry grew 84% in 2015, to £1.74 billion in funds raised across Europe alone. These companies and their platforms indicate the exciting and dynamic potential of equity crowdfunded businesses.

 

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RichardAndreeWiltens

About the author
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.