London, 11 November 2014
Equity finance fastest growing form of crowd funding
EQUITY crowd funding, where investors buy shares in start-ups, early stage companies or those seeking expansion capital, is officially the fastest growing form of crowd funding in the UK, with the value of investments rising by 201% in the past year, according to a new report by Nesta, the innovation charity.
Equity crowd funding platforms are predicted to facilitate £84m of investments by the end of 2014.
Commenting on the figures, Jean Miller, CEO of Investingzone said:
“Yes investing in start-ups is risky but the rewards can be enormous. Investors can spread as little as £100 in each project and if they invest in a portfolio of deals then the chances of success in at least one of them is very good. And when start-ups really succeed, the returns can be enormous, more than making up for losses on other investments. That’s how private equity and venture capital fund managers work, and it’s a good model for private investors too.”
Many commentators say that 50-70% of starts ups fail, but Miller disagrees.
“My experience in the City shows that about half of that 50% don’t actually fail, they just plod along earning the owners a decent living but never expanding and growing enough to repay investors any money. That’s why we’re so focused on getting investors and company directors engaged with each other and giving shareholders voting rights so that they can force the companies to change strategy and expand.”
The report shows the average equity investment in the past year was £1,599 and the average amount raised by companies £199,000.
On average it takes 125 investors to fund an equity finance deal, and the average investor has 2.48 projects in their portfolio.
Crucially, 95% of projects were eligible for the Enterprise Investment Scheme (EIS) or the Seed Enterprise Investment Scheme (SEIS) which can give upfront tax breaks of up to 50% to encourage investment.
The predicted growth of equity crowd funding is so vast that private equity guru Jon Moulton recently acquired 25% of Investingzone so that he has exposure to this exciting new way of participating in Britain’s blossoming entrepreneurs.
THE FAILURE OF BANKS AND OTHER FORMS OF FINANCE
Banks have never been keen on lending to start-ups and SMEs have a terrible time accessing finance from the banks. Essentially, the banks will ask you if you have security in the form of a property, and if you don’t, you can’t get funds. But that is not a business loan that is a mortgage. What we’re about is giving companies and investors the opportunity to get back to basics in investing – that is, spotting a good idea, early in its life, and backing the company by buying shares in return for fair share of the profits.
“Banks simply don’t have the resources or expertise to be effective SME lenders, analysing business plans or forecasts, and so their lending criteria is incredibly rigid” says Miller. “For serious entrepreneurs, banks just aren’t really an option any more.
“Private equity or Venture Capital funds can often help but there’s simply not enough of them investing in early stage, likewise there’s not enough traditional angels networks to cover the range of opportunities.
“But allowing investors to browse and research genuinely innovative ideas on to a website, where they have time to research the market and decide for themselves whether it is worth a small investment, means that entrepreneurs get a far wider pool of capital and investors have a whole new world of investment opportunities to choose from. This is a natural evolution of equity investment and as the stats show it is taking the country by storm.
“This is already revolutionising the way companies get off the ground and expand and it will boost the economy and employment enormously – remember, small businesses account for almost 60% of private sector employment so it’s crucial they have better access to affordable finance.”
Notes to editors
The report published by Nesta and University of Cambridge ‘Understanding Alternative Finance: The UK Alternative Finance Industry Report 2014’ can be found here.
For more details on Investingzone please visit the website: https://www.investingzone.com/
For further details contact:
Jean Miller, Investingzone on 07768 994 398
Nick Gardner at Cicero Group on 07453 721 803