Before the age of the internet gave rise to equity crowdfunding, equity in fast-growing young companies was difficult, if not impossible, for most investors to access. The outsized gains available had hitherto been the preserve of high net worth angels and VCs alone. And, even for them, the cost of origination could be very high. Equally, before the pioneers of this sector launched their platforms, it was difficult for fast-growing customers to access investors who understood their proposition or market. Online equity crowdfunding and the various platforms which facilitate it have fundamentally changed the game for both young companies and the investors who want to back them.
However, with outsized rewards come outsized risks, Soon, the sceptics were asking if the new cohort of investors understood those risks. At the 22 October 2015 meeting of the Treasury Select Committee, Chris Philp MP voiced concerns about equity crowdfunding saying:
“I’m concerned that it might be the next big regulatory or financial services scandal.”
He went on to quiz Tracey McDermott, then Acting Chief Executive of the FCA:
“Do you have any figure on the level of investment losses suffered?”
Her reply did not provide reassurance:
“We don’t have a current figure”.
For equity crowdfunding to win the trust of government, regulators and investors alike, all interested parties must understand the rewards and the risks. In the year since AltFi Data's ‘Where are they now?’ was published, great steps have been taken towards delivering the necessary disclosure to allow this asset class to develop.
Our 2016 report reveals the status of all companies that have been funded using equity crowdunding, since the industry was conceived in 2011. It also provides a framework which allows investors to appraise the emerging picture of risk and return in the asset class. It is still early in the context of the extended equity return life cycle, but a clearer picture is emerging. The report also reviews the progress towards better disclosures and highlights signs of further advances to come.
Join AltFi for its third annual Alternative Income Forum, exploring closed-ended funds (investment trusts) specialising in generating an income using alternative assets such as specialist finance, P2P lending, direct lending, asset leasing and more. Hear from the leading investors and fund managers in this rapidly growing market.