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NextFin has aggregated and monitored over 3000 equity crowdfunding pitches. The FCA regulates the industry and on December 9th new rules came into force highlighting the need for transparency and collaboration, which unfortunately are still not being fully adhered to out of competition fears.
As part of our coronavirus guidance, we recently analysed the state of equity crowdfunding and the impacts of the pandemic on the figures. Seedrs, community funding was 20% lower in March than it was in spring over the last three years. In this piece, we look at the future of equity crowdfunding over the coming years and whether it will become a leading source of finance.
*Cambridge Judge Business School, Global Alternative Finance Benchmarking Report
With the equity crowdfunding market having raised a staggering £330 million in the UK alone by 2018, it is easy to wonder where this new form of democratised investment will go next. Data from 2018 shows that equity-based crowdfunding was £1.15bn globally, China only accounted for £6m. However, their P2P marketplace exceeds £44bn. The UK is the second largest provider of equity crowdfunding in the world.
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AIM Statistics, January 2020 |
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|
Year |
Total UK Companies |
Total New Money Raised (£) |
|
2015 |
845 |
1.240bn |
|
2016 |
809 |
1.103bn |
|
2017 |
808 |
1.580bn |
|
2018 |
780 |
1.563bn |
|
2019 |
740 |
489m |
The table above shows details on UK and international companies on Alternative Investment Market (AIM), including money raised. In 2007 there were 1,347 UK companies listed on AIM, compared to 2019 decreasing to 732 (almost half from its peak). In 2007 £6.5bn of new capital was raised compared to 2019 as shown above where £498m was raised - its worst year yet, pre coronavirus.
Equity crowdfunding on the other hand raised £330m. Year on year we are seeing a decrease in the AIM market yet year on year equity crowdfunding is growing. Could equity crowdfunding replace AIM? The answer is: yes. However this won’t be the case unless we see collaboration, transparency and information shared between platforms. There also needs to be independent advice accompanied with a rating for each company on a platform like NextFin which would stimulate a liquid secondary market.
CEO of NextFin, Sacha Bright said: “NextFin’s aim is to facilitate this, which is why we have our ratings and comparison site. But a liquid secondary market across all platforms will not be possible unless all platforms collaborate or the FCA insist on it. The reason why AIM is successful is because it is heavily regulated and all brokers, nomads and corporate finance prepare businesses with independent ratings, research and valuations which feed into a stock exchange. The equity crowdfunding market will never be dominated by one platform, simply because of the low cost to entry to establish oneself.
“Although Seedrs and Crowdcube have done an amazing job so far, there are many platforms in the UK and abroad expanding fast, and marketplaces are generally only successful if they replicate what already happens in the real world, and right now there is no collaboration between sites.”
He added: “One significant development we may witness is an increase in more niche platforms. With the industry growing wider and wider over the coming years, the market is starting to become more saturated with the more industry-specific and white lable equity crowdfunding platforms, giving rise to more specialised crowdfunding sites looking to provide niche services – the recent emergence of real estate crowdfunding is a good precursory example of this and Envestors and RightCrowds providing a white label crowdfunding service.”
"Start-up funding is something that will also be affected by the rise in equity crowdfunding. The internet age has allowed the global start-up culture to thrive, with the number of new start-ups reaching record highs last year in a number of countries – over 600 000 in Britain alone.
“The crowdfunding revolution (itself born out of startups) has helped many new businesses gather funds where they might previously have been unable to, and the relationship between the start-up culture and equity crowdfunding is still very important. However, as we see AIM decrease in size every year, we are starting to see larger companies delist and use equity crowdfunding to raise new capital.
“The technology surrounding equity crowdfunding is also likely to improve. But as I have argued before, the future success of equity crowdfunding is down to collaboration to create a liquid market.”
Author: Sacha Bright & Oliver Murphy
Disclaimer
To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed.
Tagged: Start-up Seedrs Crowdcube Equity Crowdfunding AIM
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