Seedrs becomes the first equity crowdfunding platform to publish portfolio level data, revealing an annualised rate of return of 14.44 per cent.
Seedrs has become the first equity crowdfunding platform to publish meaningful performance data. The company has published its first portfolio update, recording paper valuations for each of the 253 companies that have raised funds via the platform since its launch in July 2012, up to the end of 2015. The platform-wide IRR came in at 14.44 per cent, climbing to 41.87 per cent when SEIS and EIS tax reliefs were taken into account – a return which CEO Jeff Lynn (pictured above) called “off the charts”.
At a breakfast meeting this morning, Lynn stressed that the numbers are based on “paper valuations”, and that Seedrs doesn’t expect to see substantial cash returns for investors for a number of years. “All this can speak to is what has happened so far,” said Lynn.
The data revealed that some of Seedrs more active investors have been able to significantly outperform the platform-wide results. Investors with portfolios of 20 or more investments achieved average IRRs of 15.01 per cent (43.39 per cent when tax-adjusted). Meanwhile a handful of investors have managed to outperform the platform average by over a thousand basis points.
Of the 253 businesses funded by Seedrs up to the end of 2015, 47 (18.58 per cent) have failed. However there have been proportionately more failures in the platform’s earlier vintages, as is to be expected. Of the 39 deals sourced in the platform’s first two years in operation, 41.03 per cent have failed. But the non-tax adjusted IRR for these years nonetheless came in at 11.68 per cent. Lynn explained that, in the worst case scenario, investors can only lose 100 per cent of their money, but they could earn returns that are significantly in excess of 100 per cent.
Asked whether investors with smaller portfolios have suffered underperformance in relation to the platform-wide portfolio, Lynn said that the average across these sorts of investors is broadly in line with the platform-wide average – but that the results are more “skewed”. In other words, with less diversification, some investors will have seen a much stronger performance, while others will have seen a significantly weaker performance.
EY has officially signed off on the valuation methodology employed by Seedrs, confirming that it adheres to industry-standard International Private Equity Valuation (IPEV) Guidelines. The landmark report will be produced on an annual basis going forwards. Lynn said this morning that he hopes that other platforms in the sector will begin to release their own performance data in time, and that he hopes that they will follow “a similarly rigorous approach”.
“The release of this Portfolio Update is momentous for Seedrs. I co-founded the business in 2009 because I am a strong believer that a portfolio of early-stage investments can produce great returns for investors large and small,” said Lynn. “Now, for the first time, we have the data to prove it.”
The information in the report will soon be made available in a prominent position on Seedrs’ website, giving prospective investors a unique overview of the platform’s portfolio performance to date. Investors will also be able to compare the health of their personal portfolios against that of the platform as a whole – providing a benchmark for individual success. The next step, presumably, will be the emergence of a sector-wide benchmark.
Today’s move arguably pre-empts impending action from the FCA. The City regulator published its post-implementation review of crowdfunding (both debt and equity) in early July. The review stated that the FCA would consider taking steps to mandate the disclosure of performance data. “Based on the outcome of the review, to help potential investors better understand the risks, we could consider whether to mandate additional disclosures, for example setting out how many businesses that raised funds have since failed and how many have had successful pay-outs.” Responses to the review are due by tomorrow, September 8th, and Seedrs CEO Jeff Lynn confirmed that the platform’s newly published performance data will be sent to the regulator as part of the company's response.
AltFi Data’s “Where are they now?” report, published November 2015, marked the first substantial effort to demonstrate investor returns in equity crowdfunding. The report sought to assess the health each and every one of the 367 companies that had then raised money through Crowdcube, Seedrs, SyndicateRoom, VentureFounders and CrowdBnk. The report found that over 80% of the companies that crowdfunded between 2011 and 2013 were still trading. Furthermore, the portfolio return of the industry since inception, calculated as an IRR, correct as at the time of publication, amounted to 2.17 per cent. Assuming the full utilisation of SEIS and EIS tax reliefs, that return increased to 33.79 per cent.
Regulatory considerations notwithstanding, the gauntlet has now been laid in the field of transparency in the equity crowdfunding space. The pressure is on for the likes of Crowdcube and SyndicateRoom to follow suit.
“It is difficult to overstate the importance of this data: it is a game-changer for us and for the many investors from all over Europe (and, soon, the United States) who allocate capital through our platform,” said Lynn.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.