The Strange Case of Missing Data on UK Equity Crowdfunding

By Mike Baliman on 1st December 2015

Sherlock Holmes would have loved this one. One of his maxims was around the importance of “the dog that didn’t bark”.

The Strange Case of Missing Data on UK Equity Crowdfunding

Well here is a tale of lots of dogs and no barking.

Back in May of this year I wrote Risk in Equity Crowdfunding – Oh Dear What Can The Matter Be? Having spent a career working in grown-up markets and now consulting, podcasting and writing about the #newFS world the deficiencies of these “new markets for equity” are all too obvious.

The major ones still stand.

B shares are a common device.  That’s fine if you are up for being a second class citizen. Under apartheid.

Due diligence standards are … well … “far below what you need to get onto a real grown-up stock exchange”.

Pricing. When you get an email from a mate about his company raising shares at 150p how on earth do you know what it’s worth? And after all he will have set the price himself (on almost all platforms). I doubt he set it in your favour.

But a lesser and more subtle point that I was bemoaning still stands. The sheer lack of almost any data whatsoever.

In a world where folks (and their PR departments) will boast of most anything it’s a little bizarre when the dog don’t yap.  Not just one dog but several dogs.

1) Looking at the main three platforms you will be hard pressed to find anything quantitative. A couple show volumes of equity raised to date (one doesn’t). On none could I find the percentage success of raises on their platform (ie how many offers of equity failed). On none could I find any indication whatsoever as to what happened next to the companies that had raised on their platform.

2) In P2P I have critiqued and criticised the P2PFA’s standard of risk information disclosure. However at least they have one! You will be hard put to find a standard from the UK Crowd Funding Association in re – they don’t even mandate that their members tell us the total volume of offers listed or the success rate.

3) In parliament recently at the Treasury Select Committee neither the acting head of the FCA nor its Chairman could tell the MPs how many crowdfunded companies still survive or have gone bust. However they do insist that all platforms state that the vast majority of start-ups fail (a point rather contradicted by various statistics).

So Sherlock would have a trio of quiet dogs on his hands in this case.

Why do you think this is happening?

What do you think of the platforms, their trade association and the FCA?

On the case?

Into this void sallied forth a recent report by AltFi Data and Nabarro the City lawyers called “Where are they now”  In an upcoming podcast I interview Rupert Taylor of AltFi Data about this report and in particular the sheer hard grind that went into merely trying to find out whether companies are alive.

For those of you who don’t have the time to plough through pdfs or who read about it in the media [different elements of which spun it this way and that] key takeaways were:

  • some 450 companies have crowdfunded to date
  • £190m of equity capital has been raised in this way since 2011, with close to £140m being raised this year alone
  • over 80% of companies that crowdfunded between 2011-13 are still alive
  • the average age of a company crowdfunding is 3.3 years (which to me is beyond being the startup of lazy journalists)

But back to the dogs…

We all know that businesses can make a quick buck. But from their more grown-up sibling, P2P, crowdfunders might learn the lesson that long term growth comes from creating trust and a solid market.  There ain’t no grown-up market that ain’t in touch with it’s stats.

As to the crowdfunding association – well setting no standards does encourage the view that you are just a lobby group rather than a professional body.

As for the regulator, they set the rules for the whole game. What they say has to be done so they play a vital role.  In sports terms they set the rulebook and referee the match.  So they have a very onerous job … the right rulebook and you get a professional game. The wrong one, a big punch-up and court cases.

It’s a challenge to regulate any new industry, let alone to, in essence, be the lead regulator in the world who all others are watching.

If I were up high in the FCA I would certainly be asking for a far better briefing before I next popped down to Westminster.

I would most certainly be roasting those who wrote rules with no demand for platforms to monitor and release the simplest of data, let alone more interesting stuff such as comparing profit performances of crowdfunded companies with what they forecast at listing.

Imagine if you saw a table of that?  How would that help you as a consumer?

On Platform A 90% of companies never met any of their financial projections, on Platform B 50%.

Might help you eh?

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