Equity Crowdfunding?

alicaurusrex

I'm curious if anybody here has ever done equity crowdfunding, and if so what you think of it?

My partner is a journalist and she recently interviewed a chap who was very enthusiastically raving about equity crowdfunding, and she came back very excited about it!

This is the company that she was interviewing and they have a whole thing on their website about it: terencewoodgate.com/about/crowdfunding (sorry as a "new" user I am not allowed to post links!)

The thinking is...

Crowdfunding (Kickstarter, Indiegogo etc) are great to gather the capital to fund your initial launch or production, but effectively they are 'pre-orders' and once you have fulfilled them then you are back to square one. Once those initial supporters have received their item then they no longer have any investment in the continual success of your company as they already have their 'reward'. It's great for getting things off the ground but not good as a longterm solution.

Selling shares has the opposite problem of being difficult for new burgeoning companies and also predominantly bought by people whose sole interest is financial return. They don't need to be passionate about the product, only the bottom line. Also buying shares is not something that is accessible to or possible for most consumers / customers.

In theory equity crowdfunding should help bridge this divide by allowing 'crowds' to by shares in your product, from just £10, and they are then invested in the continued longterm success of your business.

I thought it was interesting so have "invested" a very small amount in the lighting company above and also in a computer game called Redemption via an equity crowdfunding site called CrowdCube. I am not expecting much if anything in return but I was curious to see how it works. If I saw a return then that would be nice! (although not holding my breath!) Looking on there now I have noticed some people have invested tens of thousands of pounds via it :shocked: so presumably there are some out there who really believe in it (or do they have more money than sense!?)

Just wondering if there are any small-time investors who have had any experience of this and what you think?

arbster

I'm really surprised how little discussion there is on the forum about CrowdCube, especially given how popular the P2P sites, like Funding Circle and Ratesetter, are amongst forum regulars.

Has anyone actually taken the plunge and invested via CrowdCube?

I'm particularly interested in the combination of Income Tax relief and CGT deferral from investing in EIS-qualifying Pitches, giving me an effective 58% discount on any investment.

Anyone else researching the option and care to share views?

MadMat

I've had a little look at crowd cube, looks like very high risk stuff to me, and not much ability to get your money back out of even a successful company until they are big enough to list on an exchange somewhere!

Mat

PlutoinCapricorn

Enthusiastic raving would put me right off.

There is a good article about equity crowdfunding in general:

" crowdfunding will at best be good only for the entrepreneurs and middlemen, paid for by unwitting consumers who simply cannot know enough about the highly risky ventures or the highly complex venture investing process to make informed investment decisions.
I am referring only to equity crowdfunding."

https://hbr.org/2012/04/the-road-to-crowdfunding-hell

arbster

Thanks both. I've spent a fair amount of time reading around the subject, and am definitely unnerved by the lack of real evidence of RoI on the Crowdcube website. Lots of talk about how much has been invested, but no real information about overall returns. Understandable, I guess, given the diverse nature of such investments, but still concerning. Will look elsewhere.

HouseBuyer77

A friend of mine likes syndicate room: https://www.syndicateroom.com

All of the companies available for investment have a lead investor. This is a an angel investor who has done their due dilligence and put their own money in. You are then offered the opportunity to also invest (on the same terms as the angel I think).

So this gives you some confidence the investment is potentially worth something. Still there's plenty of risk the company will come to be worth nothing or you get dilluted out of the big pay day (effectively you start off owning x% of the company and end up with y% several years down the line where y is significantly less than x) or some other shenanigans go on that leave the valuable bits in a company that you don't own any part of.

If you've got some spare cash that you don't mind losing and appetite for high risk, 'interesting' investments then potentially worth a punt. Just don't expect anything back for your money, it's more or less a £x'000 lottery ticket.

HouseBuyer77

Oh and RE: RoI - These are highly illiquid long-term investments, I'm not sure any equity crowdfunding website has been around long enough to get meaningful RoI data (though a percentage of how many companies available for investment last year/year before last/etc are still operating and what they're currently valued at would be interesting).

Linton

elisagrace wrote: »

Hi alicarusrex,


Equity crowdfunding is playing a major role in small business sector. This crowdfunding provides a good feeling amongst the investors as this will give them the feeling of partner in the firm where they are investing the amount. It is also a source capital for entrepreneurs.

These three statements may well be true. However the question is whether equity crowdfunding provides a good deal for naive investors. It seems to me that at best the jury is out, at worst no way. So, unless you really know what you are doing and have spare money you are prepared to lose, keep clear.

bowlhead99

Linton wrote: »

These three statements may well be true. However the question is whether equity crowdfunding provides a good deal for naive investors. It seems to me that at best the jury is out, at worst no way. So, unless you really know what you are doing and have spare money you are prepared to lose, keep clear.

I can't see that it presents a good deal for naive investors because it will be a 'punt' at best and more small businesses fail than survive and thrive.

The comment above about ROI data being lacking is understandable given equity investments in small businesses take a long time to bear fruit and interim unrealised valuations can be impossible with the data provided. Importantly, every business, and every business plan, is different and therefore the fact that someone got an IRR of 25% and a 2x total return on cash on one deal, and someone else got a total loss on another deal, a particular crowdfunding website, doesn't tell you anything about what return you would get from the specific deal you would like to fund. Likely the one that made 25% p.a. did not target that specific rate of return and neither did the one that made the 100% loss.

I would disregard the comment from elisagrace that you replied to, whatever its merits. A new user with a crowdfunding website on their profile, location "New York" but posting at 9am UK time, having made no other meaningful contributions to the forum since registering and now reopening a 6-month old thread to make a post about crowdfunding, in poor English? Trademark spammer, right?

jenifferhomes

I'm particularly interested in the combination of Income Tax relief and CGT deferral

bowlhead99

jenifferhomes wrote: »

I'm particularly interested in the combination of Income Tax relief and CGT deferral

I am, but doubt that you genuinely are.