The online sphere has examined at length the impacts of equity crowdfunding on the financial industry and startup economies. It’s equally important to consider the effects it has had on investors, and opening up new avenues of investment to an array of types. Undoubtedly, equity crowdfunding by its very nature proposes a new dawn for growth investing, and a reassessment of the companies and investors who are attracted by this investment type. Today, Equitise delves into growth investments, how it compares to value investing, and why equity crowdfunding ushers in a new era for this strand of business investment.
Firstly, some definitions may be helpful for the uninitiated.
Growth investing refers to a capital appreciation-focused investment strategy, investing in companies that exhibit signs of above average growth. Even if the share price is expensive in terms of metrics, growth investors look to the aforementioned signs, rather than price-to-earnings or price-to-book ratios.
Conversely, value investing targets stocks that trade for less than their intrinsic values. Value investors will target stocks they consider to have been undervalued by the market.
Equitise has spoken previously of the benefits to equity crowdfunding for both retail and experienced investors – potentially higher returns than traditional finance, spreading risk through a diversified portfolio, and removing administrative costs among them. Nonetheless, successful exits take time. Despite the nascent popularity and soaring success of the industry in areas with liberal regulation, such as the UK and the New Zealand, time will still reveal the returns to investors, and this may take between three to ten years. Angel investors and syndicated investment platforms have been attracted to equity crowdfunding by the relatively high returns offered after a certain period. The relative lack of data available to analyse when it comes to startup businesses, however, means that individuals looking to become growth investors must understand the underlying principle of return. Recent success stories such as the exit of E-Car by Europcar demonstrate the potentially enormous and exciting benefits for investors, but the majority of equity crowdfunding projects remain at the seed stage, which investors with either short attention spans or seeking immediate rewards must be conscious of.
“I think it’s massively helpful that companies now have better access to equity finance from an earlier stage” Marcus Stuttard, Head of AIM and UK Primary Markets at London Stock Exchange Group.
The startup financing cycle has hugely benefited from the proliferation of equity crowdfunding, as have the investment portfolios of those investors whose projects have successfully exited. Startup financing at growth stage will always be a nebulous and difficult to predict business, but for investors who are spreading the risk with a diversified crowdfunded equities, it is always worth assessing your growth investment strategy.