Predicting the future is a notoriously difficult business. Just look at last year who would have predicted Brexit, President Trump and Iceland knocking England out of the Euros? So I’m sure it was with some trepidation no doubt, that the founders of the top four equity crowdfunding platforms rolled up to give their predictions for 2017. Crystal balls at the ready, let’s look at what they said.
Like a good fairground ‘futurologist’, each started with some facts so as to appear to have a basis of evidence. There was a good smattering of successful raises and records broken - there was even the odd exit! Each of the founders of course predicted another good year for crowdfunding, however they also saw significant shifts coming. The image of crowdfunding is a ‘crowd’ of smaller investors bravely pumping money into plucky start-ups. However this is predicted to change with an increasing number of ‘sophisticated investors’ and institutional monies being involved. The logic here appears to be that this marketplace is now seen as sufficiently mature to be worth their involvement. And the claim is that the innate efficiency of on-line investing makes it easier to diversify portfolios.
The picture painted is of companies raising increasingly larger rounds from a mixture of sources of which crowdfunding will normally be one. More than one founder suggested that 2017 is the year that institutional capital begins to play a meaningful role in equity crowdfunding. This combination of maturity, cost effectiveness and financial return are all set apparently to move ‘discerning investors’ from watching from the side lines to helping fuel serious growth.
There was also a lot of talk of Business to Business scaleups, rather than start-ups using on-line capital. Naturally much of this will be in technology with Fintech, (financial technology), being singled out as a particularly hot area. However ambitious companies in Proptech, Cleantech and Healthtech were also mentioned. Most people will understand these terms, but Proptech might be new to you. This refers to the wave of companies refining, improving and reinventing services related to property. Think Airbnb, Rightmove, Zoopla and Nest.
Another predicted change is that companies who wouldn’t previously have been associated with crowdfunding will go down this route. In case you are wondering which platforms are being quoted here, they are Crowdcube, Seedrs, Syndicate Room and Venture Founders. The most agreed-upon prediction was the increased involvement of institutional investors in crowdfunded raises. Seedrs, in particular, make the point that the comprehensive data they release on their investments are providing the necessary evidence to make this happen. They also make the interesting point that in many ways equity crowdfunding now is akin to peer-to-peer lending 4-5 years ago. This suggests that the equity market is now similar to the point at which institutional investors entered the P2P space. You might say that we are at a tipping point, although perhaps this analogy might make the four founders a little queasy? Syndicate Room of course cited their move into the London Stock Exchange as another driver for this trend.
So there you have it. We are going to have a mature, growing on-line capital market where more great deals are done amidst growing credibility as the big boys hop on board to play. In fact one founder went on to say that raising finance on line will become the first port of call for most companies. I would never like to say that these four outstanding founders could possibly be wrong. However there is a useful quotation here - He who lives by the crystal ball will eat shattered glass.