Equity crowdfunding will look even more grown up by Christmas 2017. More regulation is coming to the sector: the Financial Conduct Authority (FCA) has said it’ll consult this year on new rules, in a bid to improve protection for retail investors and increase transparency around financial promotions.
As deals mature, exits (and failures) will increase in number. Platform Syndicate Room saw its first in mid-December, as medical technology platform Oval Medical was bought up by healthcare contract manufacturer SMC. Businesses will return to platforms for follow-on rounds, VCs and institutions will become more involved in the sector – both in terms of investing and setting up new platforms – and any added economic uncertainty will spotlight the industry as something that aids small and growing businesses.
Here are four leading founders’ predictions for the year ahead.
James Codling, co-founder and managing director of VentureFounders – rising interest from B2B scale-ups
In 2017 the equity crowdfunding market will continue to mature and gain further credibility, and this evolution will mark the beginning of a shift in the way equity crowdfunding is used, both by investors and businesses. This is based on a trend we saw towards the end of 2016 for increasing numbers of companies, which you would not usually associate with crowdfunding, looking to include equity investment from alternative finance in their fundraising mix.
B2B scale-ups are becoming increasingly open to supporting their funding rounds with additional investment from private investors through online platforms, especially in the health, science and marketing sectors.
Additionally, the rounds they are raising are significantly larger than those that raise exclusively through crowdfunding; at VentureFounders we supported four of the 20 largest rounds in 2016 and our campaigns typically total £2.5-5m. I expect this size of fundraise to become the norm – and even possibly increase – in 2017.
This shift is due to an increased interest from sophisticated investors looking to diversify their portfolios, who need opportunities that have market traction to cater for their appetite to invest in growth businesses. As 2017 sees the market begin to catch up with this demand, it will become a pivotal year for equity crowdfunding being recognised as a mainstream investment and fundraising channel.
Luke Lang, co-founder and chief executive of Crowdcube – a growing focus on innovative technologies
Crowdfunding will be a catalyst for growth and innovation in the UK’s technology sector, cementing its role as a primary funding route for the next wave of tech businesses. According to Beauhurst, technology remains the most popular industry sector among crowdfunding investors.
This year will bring an abundance of exciting opportunities to back promising companies that use new technologies to shake up old models and change the way products and services are delivered. These will include ventures operating in the booming fintech sector, but also ambitious companies from the emerging proptech, cleantech and healthtech industries.
We’ve seen an increasing number of disruptive seed and growth stage companies funding on our platform in the last year, including fintech pioneer goHenry, challenger bank Monzo, energy storage company Powervault and HealthUnlocked, the social network for health that’s embedded in NHS websites. Both goHenry and Monzo broke records – achieving the highest and fastest raises in crowdfunding history, respectively – which indicates a strong appetite among investors to have a stake in the future of technology innovation in the UK.
Jeff Lynn, co-founder and chief executive of Seedrs – more institutional capital
This will be the year in which institutional capital begins to play a meaningful role in equity crowdfunding. We are now beginning to see the first exits from investments made at the beginning of the equity crowdfunding era, and on top of that, platforms like Seedrs are releasing comprehensive portfolio data which is showing highly encouraging performance numbers.
As a result, a wide range of institutions are beginning to take a serious interest in the efficiency, cost-effectiveness and returns potential of investing in early-stage businesses through online platforms.
None of this should come as a surprise: in many ways equity crowdfunding has tracked the growth of peer-to-peer lending but is about four to five years behind it. Where we are today is roughly where peer-to-peer lending was when institutional investors first entered that space. So it is only natural that this would be the time in the development of equity crowdfunding when these institutions’ interest would be piqued.
Goncalo de Vasconcelos, co-founder and chief executive of SyndicateRoom – a new breed of investor
This year we will see more discerning investors fuel serious growth in the sector, and that can only be a good thing for the industry.
What we saw in 2016 – to quote a few headlines – was the sector “growing up”, with platforms following different directions in pursuit of their core values. For SyndicateRoom, this meant an expansion into the London Stock Exchange and the creation of our fund, Fund Twenty8.
As the sector continues to mature, investors will no longer comprise largely the innovators – a small group of people excited at crowdfunding’s novelty. The investors emerging in 2017 will be those who spent the past few years watching the sector develop, analysing and keeping tally of peaks and troughs. These investors see the appeal of novelty, but they also demand results; they are the early adopters. And this is where a platform’s reputation will become invaluable.
As capital invested increases, raising finance online will become the first port of call for most companies. I expect that company-led crowdfunding will remain the go-to for consumer products and services. As an investor-led platform, we will continue to look to the long term and seek out sophisticated, complex deals in life sciences, deep tech and other IP-based sectors.
In short, 2017 is when all platforms will be tried and tested. And I for one welcome it.