How Good are Returns from Equity Crowdfunding?

Equity crowdfunding, as a disruptive alternative to traditional investment, has had to defend its viability as an industry since the outset. Investment in startup companies is typically risky territory – this notion, combined with the initial skepticism surrounding the nascent rise of equity crowdfunding, depicted an industry that supposedly only catered to the risk-embracing investor. However, since its inception, there has amassed sufficient research to assess the liquidity of the equity crowdfunding domain, and to address the question on the lips of financial commentators and investors alike – just how good are the returns from equity crowdfunding?

Industry state of play

The industry state of play can be revealed through a mass of surveys conducted in the wake of the 2014 boom for equity crowdfunding across the globe. While it’s now conventional wisdom that 90% of startups fail, 50% of all businesses fail in the first five years, and 40% lack the market need for their product, there has only just emerged new research for the equity crowdfunding industry alone. The AlfFi report on companies that raised finance through equity crowdfunding is definitive, offering a counterpoint to industry scepticism, showing that of those companies who funded since 2013, 80% were still trading. Similarly, 2016 saw the highest first quarter for dollars invested since 2000. For equally enlightening reading, research firm Beauhurst has likewise compiled research on issuers raising capital via equity crowdfunding, stating within the report that “according to the data at least – crowdfunding may be turning into a form of fundraising far less risky than anyone could have predicted.”

The crowdfunding victors

Statistics aside, recent years have seen some successful exits from equity crowdfunding platforms. 

Following Stackpath’s acquisition of cyber-security firm Fireblade for $20 million, the crowdfunding platform behind the raise created the role of Chief Exit Officer, the first of its kind in the world. Notably in 2015 we saw the very first successful crowdfunding exist, with E-Car Club’s acquisition by Europcar. Subsequent to this, European governments saw fit to regulate more liberally on the equity crowdfunding landscape, with the UK accepting submissions on its FCA amendments, and Sweden forming a committee for equity crowdfunding. The Finance Minister has said it will improve conditions for emerging companies and crowdfunding platforms in the country. 

Most notably in America, we have witnessed equity crowdfunding’s first billion-dollar exit, with General Motors acquiring Cruise Automation, the San Francisco automated car development company. Fortune.com likened the deal to “the transportation version of Facebook’s deal for Instagram”. AngelList has been celebrating the announcement as evidence of the exciting possibilities for disruptive tech companies who opt for equity crowdfunding platforms for Series A and B funding.

Evidently, the equity crowdfunding sector has entered into a new chapter, where it has cemented its status as a viable alternative, and offers tangible returns to steadfast investors. For this reason, the industry grew 84% in 2015, to £1.74 billion in funds raised across Europe alone. When the figures are announced for sector’s growth in 2016, Equitise will be there for its yearly assessment. For the time being, the success of the above companies and platforms indicates the continued ascent of the industry.

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