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The Intersection of Politics and Equity Crowdfunding: Brexit

Politics, equity crowdfunding, and Brexit

The intermingling between the spheres of equity crowdfunding and politics is taking place in increasingly diverse, impactful ways. While politicians employ traditional crowdfunding practices to reach voters, raise funds, and effect change, their political decisions have an inevitable impact on the marketplace also. In a year that has seen seismic changes across the globe, we explore the potential impact of event such as Brexit on the domain of equity crowdfunding.

 

Nothing New Under the Sun

Political crowdfunding, separate from equity crowdfunding, is no new phenomenon. In recent years, the Green Party in the U.K., alongside individual groups like No Xenophobia, have turned to the crowd to advance their programmes.

However, in the immediate aftermath of last year’s Brexit result, there seemed to be the “first sign of decline” for U.K.-based equity crowdfunding platforms in a few years. The 17 per cent dip in deals across the first half of 2016, compared with the U.K.’s boom in 2015, was the reason for this dismay.

This dip was also partially attributed to the reticence of so-called ‘armchair investors’ who make up a portion of the typical equity crowdfunding deal audience. Nonetheless UK Crowdfunding Assocation spokesman Bruce Davis was optimistic, suggesting growth would shortly resume: “The key to that will be strong signals from the government on strategy to see where it wants to see growth and investment…. [Crowdfunders] are best placed to deliver that into the real economy.”

There remains real ambiguity, however, around the terms of the Brexit negotiations, and therefore their potential ramifications for investors. While skeptics suggest that Brexit could limit the number of potential investors for U.K. platforms, who formerly had a pool of 500+ million to pull from, if the EU and the FCA can work cooperatively on regulations then their investor pool may not be so dramatically reduced. 

 

Bad Brexit, Good Brexit?

Indeed, there remains healthy optimism about the impact Brexit may have.  The alternative finance industry was born from a period of uncertainty and volatility, following the 2008 global financial crisis, responding to consumers’ lack of faith in traditional financial institutions. 

Indeed, the portfolios of Crowdcube, Syndicate Room and Seedrs remain healthy, even if the amount of money being invested reduced in 2016. Similarly, Head of Research at Beauhurst, Pedro Madeira, was quick to point out: "It’s not all doom-and-gloom – investors and companies (many of whom opposed Brexit) have kept a stiff upper lip and continued their deal-making. Skyscanner’s acquisition was the largest (of those with disclosed values) since 2011; crowdfunding platforms are moving up the value chain and (in some cases) becoming proto-fund managers; life sciences has always been a strong sector in the UK, and the opening of the world-leading Francis Crick Institute will surely further cement that."

The suggestion of a Brexit slowdown has some clear basis, namely in the sluggish numbers from Q2 2016, and stagnant startup funding in Q1 2017. But 2017 nonetheless witnessed an increase in investment for equity crowdfunding in the U.K., hitting £938 million. Equity crowdfunding can all too readily attract scepticism and naysayers, but the bounce-back of this figure, coupled with the global appetite for alternative finance, suggest this is not justified.

As the saga of Brexit plays out, it will be fascinating to witness how European platforms seize new opportunities for growth, and how their U.K. counterparts will respond to their changing tides.

 

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Richard Andrée Wiltens

Written by Richard Andrée Wiltens

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.