By Ryan Weeks on 19th November 2015
We now have some insight into the state of companies that have to date raised money in the UK through the medium of equity crowdfunding.
The alternative finance industry is famed for its transparency. However, to put it mildly, there are certain segments of the space that warrant that reputation, and others that do not. The UK equity crowdfunding industry is undoubtedly a force for good in terms of its capacity for channeling much needed funding into the nation’s startup community. But the sector has come under fire during the past 12 months. Investor protections – in terms of the share classes on offer, gaudy valuations, pre-emption rights, and so on – have caused concern amongst industry observers. Perhaps most often evoked has been the issue of opacity. Tracey McDermott, acting Chief Executive of the FCA, was grilled on the alternative finance sector by the Treasury Select Committee a few weeks ago. Chris Philp MP asked the FCA boss for numbers relating to the losses that have to date been suffered by equity crowdfunding investors. McDermott had no choice but to admit that such data did not exist. Were she asked the same question today, the answer would be different.
AltFi Data this morning unveiled the first serious attempt to ascertain the current status of the 367 companies that have (at some point since the industry’s inception in 2011) received funding from one of the UK’s 5 major equity crowdfunding platforms. The FT covered the report launch, choosing to lead with the headline: “One in five UK crowdfunding investments fail”. The flipside of that, of course, is that 4 do not – and that to me seems the more significant angle.
The gathering of industry participants, commentators and press at this morning’s launch event was welcomed by Sam Robinson, a partner at Nabarro, which supported the report. The audience were then walked through the highlights of the report by AltFi Data Co-Founder Rupert Taylor. These included the following:
I attended the report launch this morning, which was held at the offices of Nabarro. Needless to say, the findings inspired some fairly heated discussion, the highlights of which are summarised below:
To end the event, Rupert compared the development of transparency within the peer-to-peer lending space with what may come to pass in equity crowdfunding. Funding Circle, followed by Zopa and RateSetter, published their full loan books as part of their entry into the Liberum AltFi Returns Index (LARI). The industry body – the P2PFA – now requires that all of its member platforms adhere to that same level of disclosure.
When surrounded by operators that go the extra mile to allow their customers every opportunity to make informed decisions, the position of the opaque becomes less and less defensible. In short, transparency breeds transparency.
You can access the slides from this morning's presentation here, the published report here, or purchase the full report by emailing data@altfi.com.
26 Nov 2015 03:47pm
Hi Ed. We absolutely agree. Albeit appraising those sorts of differences can be highly subjective. We believe that, whilst it requires patience, the most objective measure of the relative merits of the different approaches will be identification of the return that each platform generates over time. That said - we are always in favour of improved disclosure as you intimate!
26 Nov 2015 02:45pm
A very useful piece of work. Do crowd investors understand the terms they are signing up to? This is another area of risk for the unwary and/or inexperienced. Could a follow up be a comparison of the terms that the various platforms use for both investors and investees. I have an underlying concern that "naive" investors may not understand the differences between the various platforms and that some of the platforms are not clearly articulating their terms in full for people to make the best judgements.
Now in its sixth year, the AltFi London Summit returns on 18th March 2019 to 155 Bishopsgate. Last year proved to be a crucial turning point for the key players building the future of finance. Leading platforms launched oversubscribed IPOs, digital banks proliferated and mainstream financial institutions started their own disruptive propositions. With 2019 certain to be another landmark year, more questions will be asked by regulators with investor interest in disruption also poised for more rapid growth.
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