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. If you're an equity crowdfunding investor in the UK, you have to date been operating with one hand tied behind your back. In appraising the risk of an investment opportunity, what information have you actually relied upon? You have the story behind a campaign, forward-looking financials, data pertaining to the market opportunity, information about the Founders, about the share class on offer, and so on, and on. All of this information relates to the individual campaign under review. What is missing is any kind of data whatsoever relating to the performance of the platform – the purveyor of these many individual investment opportunities. This sort of data is integral to price discovery. How many Crowdcube deals fall over? How many Crowdcube deals stage up-rounds? How many exits has Crowdcube secured to date? Only by blending this so
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.
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