Any Crowdcube fans?

jonnygee2

I'm an avid crowdcube investor, I was wondering if anyone also invests?

I probably invest about £50 / month average in various startups and have about 30 investments total. It's more of a hobby than a serious investment bid, although I know several companies are doing very well and I could see some returns one day.

Anyone else? Would you try it? Why/Why not?

AnotherJoe

Never heard of it. What's its USP ?

bowlhead99

AnotherJoe wrote: »

Never heard of it. What's its USP ?

It's one of the longest running UK crowdsourcing platforms. I've funded a few things on there, though only one of which wasn't EIS eligible.

Usually £1k or less each time, though I did invest £2.5k in one company for the extra perks (combination of the perks, income tax relief and further tax relief if it fails, means it won't have cost me much in the grand scheme of things if they go under). There is often a 'sweet spot' in terms of perks per pound invested, which can form part of the value proposition - and some of the perks would have no value for people who didn't want them or couldn't use them.

I wouldn't bother with £50 a month though, as the expected profits on £50 are just not worth the time researching what's on offer, and effort in administration and record keeping etc for (say) 30 high risk investments. Whereas spending more like £10k spread over ten deals, some larger and some smaller than average, with the associated tax breaks, could be fine.

Although obviously, risk of total loss if it's not EIS/ SEIS qualified; and there are other rival fundraising places to spread your money around (Seedrs raised over £100m last year); caveat emptor etc.

jonnygee2

Never heard of it. What's its USP ?

It's probably the biggest crowding site, and also one of the easiest to use. I think it's USP, although now matched by others I believe, is that when businesses relist it offers you the chance to sell your shares on, so you are more likely to see a quicker (albeit lower as your are cashing out early) opportunity to get a return.

I wouldn't bother with £50 a month though, as the expected profits on £50 are just not worth the time researching what's on offer,

I disagree, at least for me. Small investments over time, I want to get an idea of what does and doesn't work (could do this as a paper only exercise too, but that wouldn't be as fun).

In ten years time or so I'll take stock, if it's been successful I might put actual money in.

bowlhead99

jonnygee2 wrote: »

I disagree, at least for me. Small investments over time, I want to get an idea of what does and doesn't work (could do this as a paper only exercise too, but that wouldn't be as fun).

In ten years time or so I'll take stock, if it's been successful I might put actual money in.

The problem is that what does and doesn't work over the past few years and next five to ten years from now might be quite different from what works over the following period. Different businesses prosper during different parts of the economic cycle, and in some periods the markets are particularly bouyant (boom time for IPOs etc and people lining up to take over fledgling and growth capital businesses with a huge wall of capital waiting to be deployed by investors) and others they are not.

An analogy within the alternative investments space would be people doing peer to peer loans from when they first came to market in about 2010 through to about 2017. During that time there wasn't a recession, employment climbed to an all time high, no major UK platform collapses, and market interest rates were going down rather than up so that borrowers could refinance and pay you off early, with decent economic conditions inherently lowering the risk of defaults. People investing in that period probably have a rose tinted view of whether it's good and reliable and what the risks are over a full credit cycle where the competitive environment toughens for p2p firms and some may go under, credit quality (or lack thereof) begins to show itself, etc.

Things evolve with the early P2P sites not being the ones people on here most recommend now. I would say using 'play money' for a long period and only eventually getting into spending real money many years later once you have your false sense of security, is something that could backfire.

But still, if £50 a month is all you can spare for your play money, I shouldn't knock it - we all have to start somewhere. I would save it up and make less frequent but more meaningful investments that you care about more and for which you have applied more filtering to your review process.

jonnygee2

Different businesses prosper during different parts of the economic cycle

You don't say!

P2P loans are different though, although I get the analogy, they are just a marketplace. The point with crowdfunding is that if you are savvy, there's clear potential to beat the market.

I would save it up and make less frequent but more meaningful investments that you care about more and for which you have applied more filtering to your review process.

I apply extremely stringent filtering. By the way, £50 is just the amount I've spent in total over the number of months I've been doing it, not the average investment size. There aren't actually that many worthwhile companies that come up imo, so I only invest once every few months (although I occasionally put £10 - £20 on when there's a reward that makes it worth it, which there sometimes is).

Thrugelmir

jonnygee2 wrote: »

The point with crowdfunding is that if you are savvy, there's clear potential to beat the market.

There's nothing new in Angel investing. Dragons Den does happen in real life. Though is far less interesting. There's plenty of cash looking for a home. With interest from both domestic and international investors.

Ideas are two a penny. Whether an idea can be successfully commercialised and the people behind it are the right candidates. Is another matter entirely.

bowlhead99

jonnygee2 wrote: »

You don't say!

P2P loans are different though, although I get the analogy, they are just a marketplace.

The loans are a financial investment which will change risk and return profile over the course of the credit cycle. The providers are a marketplace, and are themselves a small private business operating in an immature market. They are different from equity crowdfunding but in some respects they are not so different.

The point with crowdfunding is that if you are savvy, there's clear potential to beat the market.

I apply extremely stringent filtering

Certainly if you filter out all the terrible "opportunities" you will do better than the average of all the punters, some of whom don't really bother to filter the opportunities and just buy into whatever things they like the sound of.

But even if you are something of a star investment picker on that one site, you won't necessarily beat the wider investment market - because most investments aren't available on that one site, and it is a high risk industry compared to more mainstream debt and equity investments.

The problem with the level of detail presented in business plans and financial projections on crowdcube and the like, is that there isn't really enough information to do proper due diligence, to go in there and really kick the tyres and see what falls off. And as you are only investing a couple of thousand - or in your case a couple of hundred, or less - standing to make less than a thousand pounds profit - it can't possibly be worth spending the many tens of thousands of pounds on legal and commercial due diligence to decide if something will fly, like real venture capitalists would be happy to do as a matter of course before parting with their millions.

So really it just comes down to what you think you can trust from the CFO presenting the information, their attitudes and communication skills on resolving your concerns, a little blind faith and some luck.

By the way, £50 is just the amount I've spent in total over the number of months I've been doing it, not the average investment size. There aren't actually that many worthwhile companies that come up imo, so I only invest once every few months (although I occasionally put £10 - £20 on when there's a reward that makes it worth it, which there sometimes is).

I'm not quite sure I follow. You said you have invested in 30 companies spending £50/month average. So it sounds like after little more than a couple of years you would have 30 investments of £50 each. Or alternatively at smaller ticket sizes, within less than a year you would have 30 investments of £20.

So, pretty small investments and as the returns from any £20-50 imvestment will on average be in the region of tens of pounds rather than hundreds or thousands, the hours spent on research and filtering are not exactly paying off at a good expected value for money.

If now you're saying the amount you spent in total across multiple investment is £50, with occasional ones at £10-20 for a perk but generally smaller, it doesn't sound like you're playing at the very efficient end of the scale. At £10 invested it's barely worth my while writing down what I bought and why, let alone carrying out research into the opportunity, or claiming the £3 tax relief after receiving the EIS qualification certificates some months after making the original investments,

jonnygee2

You said you have invested in 30 companies spending £50/month average. So it sounds like after little more than a couple of years you would have 30 investments of £50 each.

No, that's not what average means ;-) . I have about 20 or so companies with very small amounts, usually £10 (this really is just for the bonuses - so many of them are worth as much of the share). The rest are £100 - £200. Not that it makes much difference, it's small either way.

the hours spent on research and filtering are not exactly paying off

You may have missed the part where I several times stated this was a hobby?!

bowlhead99

jonnygee2 wrote: »

You may have missed the part where I several times stated this was a hobby?!

OK, and most people doing it (self included) are doing it as a hobby - the returns are far too uncertain to give us a legitimate expectation of being able to 'beat the market', and the data on which we base our decisions is often inadequate, making it all a bit of a punt. So people do it because it's an interesting thing to do, rather than because they expect monster returns.

Perhaps some of the reward is that you are charitably funding someone's idea - if it works out you get a payoff and if it doesn't you've helped someone make a go of something which they couldn't do without your funding. The warm and fuzzy feeling from that - together with maybe taking a few freebies from their business in the process, and the fact that the government will have helped you fund it with the tax relief they offer to compensate you for the high risk (if you're investing enough to be bothered getting around to claiming it) - can add up to some sort of overall compensation for your efforts, even if the overall sale proceeds or interest / dividend income is not going to set the world alight.


In your opening post you invited comment as to whether anyone else does it and why / why not.

I do it, but wouldn't do it at the £10-£200 level because while it is a hobby, It is at its core a financial investment, and I don't want it to be a hobby that can't give me some sort of meaningful financial reward for the effort involved because of the stake being so low. I already have a hobby with no meaningful financial reward for the effort involved - posting on the MSE forums - and I have other demands on my spare time.

I think the idea that you can beat the financial markets through your private investment of debt or equity is 'a nice idea' that probably sucks some people in, but is unlikely to hold true for many people because of the high rate of failure. If you want decent returns you need to be investing efficiently (large amounts of money so that admin and research 'costs' are less significant per pound invested) and still keeping up the diversification across businesses and across platforms, so you need a lot of capital; and even doing that, and doing it not too badly in terms of filtering and decision making, you still need some luck.

jim1999

From a bit of reading it sounds to me that the risk of being shafted is far too high. Very little protection against dilution down the line, in particular.

I can see why it's of interest, but I struggle to believe the average investor would keep pace with the market.