Unbeknown to many, start-up, growth and scale-up (SG&S) businesses have had a large part to play in changing the equity investment landscape over the past few years. Starting with the introduction of the Equity Investment Scheme (EIS) in the UK in 1994, investors have been incentivised to support these SG&S businesses. With the changes in technology that allow investors to meet online and invest smaller amounts into a number of firms it is no surprise that crowdfunding has shown itself to be as popular as it is. Crowdfunding is an effective mechanism for access to growth capital for businesses and it is an investment vehicle for investors.
This combination of businesses looking for funding and investors looking for distributed access to SG&S companies has meant that crowdfunding sites across Europe reportedly raised between EUR 5.4Bn and EUR 6.8Bn in 2017. For the last few years, SG&S businesses have had what those before them never had: an option other than angel investors to help fund their businesses through equity.
For an investor, supporting a brand they understand, instead of a complex corporate is an exciting prospect. How many retail investors, for example, can pick up the latest financial results of a complex business like Barclays and give a confident view on the prospects of the firm, and then decide whether to invest, disinvest, or do nothing? Yes, some SG&S businesses are also complex but, the majority are far less so; they tend to focus on one core area of business as they grow into their markets. The opportunity to invest early on in the lifecycle of a business is exciting and, like all things, knowing when to start and when to stop is crucial to a successful outcome.
For an SG&S business, gaining access to much-needed capital, often from those that make use of their product, is an exciting marketing tool and a way of really connecting with your customers. Millions has been invested through the crowdfunding model and many successful companies can attest to the benefits of this model. Unfortunately, when raising capital SG&S businesses are limited by the inability to predict when or how investors will receive a return on their investment.
Investors are looking for a market where they can invest at a time that is right for them, not only during the crowdfunding round which is often at a single point in time, during a limited window in the business’s life. If an SG&S business is able to provide this flexibility for investors, then new capital raises would become far easier and, increasingly mutually beneficial for both the business and its investors.
Alas, we invest to make a return and if we are unable to realise a return, what’s the point of putting money into something investor can never realise a return on? Sure, there are those companies that go on to an initial public offering (IPO), perhaps pay a dividend, or maybe a venture capital (VC) or similar buys out the investor’s portion of the equity. In each case, unfortunately, the investor is not in control and can often go many, many years without realising any real return at all.
As the financial markets continue to evolve, and as crowdfunding matures, a secondary market becomes more and more important, if not entirely necessary, to continue this evolution. Furthermore, as investment into SG&S businesses becomes more accessible to the average person, and not only accessible to the few angel investor and venture capital businesses, so investing becomes truly democratised.
CrowdX aims to create the secondary market for transacting in private and crowdfunded equity. CrowdX doesn’t run initial capital raises; we simply help create liquidity after the firm has raised capital through an existing crowdfunding site. CrowdX thus operates across the crowdfunding industry and prefers to partner with crowdfunding sites instead of competing with them. We operate a wholesale market only, meaning that a retail investor can’t trade directly through our platform, but that investor can trade on our platform through their broker. If you wish to list your firm, please contact us.