Have you ever sat down to watch Dragon’s Den and said to yourself, “I would love to have a piece of that?” asks Josh Stephenson. Yet, until now, these forms of investment opportunity had been the preserve of those with contacts and financial clout to take advantage of them. However, a new way of investing promises to change all that forever: Equity crowdfunding.
Equity crowdfunding burst onto the investment scene about five years ago and has since built up quite a following. One of the companies that is part of this surge is SyndicateRoom
and its chief marketing officer, Richard Leyland, talked us through what equity crowdfunding is: “In essence, it allows the crowd – you and I – to buy small shares in growing businesses.
“Most people are familiar with the idea of crowdfunding, but they tend to know it through things such as Kickstarter, where you bring together large groups of people to do things that, on an individual basis, are quite small and, when brought together, can be quite powerful. Equity crowdfunding is a similar thing, but with buying shares instead of funding art.”
Taking SyndicateRoom as an example, you would simply log on to its website, peruse the businesses looking for investment, and, should you like what you see, invest upwards of £1,000 in it. There will be plenty of options for you, whether a pharmaceutical company, a technology start-up or even a big Hollywood movie.
However, this is not an investment scheme for those looking to make a quick buck, as Mr Leyland stresses: “It is absolutely not for people who are looking to make quick gains – it is the polar opposite of that. I would say it is very difficult to say how quickly a business can go from a start-up to being bought out by a competitor or going on the stock market. But, it is safe to say it would normally take three to four years, if not longer.”
Yet, crowdfunding has faced the problem that the investor has always been at a disadvantage, putting their money into something they have no control over, which may be run into the ground by the end of the year. This is something that the CEO of SyndicateRoom, Goncalo de Vasconcelos, is hoping to change: “What I didn’t like about equity crowdfunding was that investors were investing in the deals that the professionals didn’t want to.
“So, I set up SyndicateRoom to allow online investors to see the deals that the professionals are investing in. That is what I call the investor-led model, whereby every single deal on our website has a business angel, or several business angels, that have invested their own money and then our own online investors can see them and choose whether to invest in those same deals at the same share price.”
That is not to say equity crowdfunding is not without its risks; it comes with the same high-risk/high-reward element as any investment would offer, a fact that should not be hidden from any would-be shareholders. “We are very open about the risks because anyone that is dealing with high-risk products shouldn’t be trying to hide it. Our track record so far has been very good, we have one failure out of companies – that is much lower than any average of our competitors – but that doesn’t mean it is not risky,” explains Mr Vasconcelos.
Equity crowdfunding may be a young industry, but it is growing at a startling pace, and the potential for it to replace established methods of investment is something that is exciting the folks at SyndicateRoom.
“I think it promises something really, really huge and could become the main source of start-up funds for businesses around the world and in developing countries,” says Mr Leyland. “It has the potential to replace venture capital, bank loans and all the different ways that people used to raise funds because what you can do is go to an audience of people who are interested in your industry and have some passion for what you are doing.”
Yet, if this future ideal is going to come to fruition, then the first wave of crowdfunded ventures must pay dividends.
“Crowdfunding has to be sustainable. It may be this wonderful thing that can help companies and people, but for it to be around in five years’ time, investors have to make money and reinvest some of that money back into equity crowdfunding platforms. Otherwise, the investors will disappear and the industry will fail,” adds Mr Vasconcelos.
Suppose you are looking at getting involved with equity crowdfunding. In that case, there are plenty of reasons to get involved, whether to bolster your investment portfolio, add to your retirement income, or even support a business that is looking to achieve something that you agree with.
“You could be backing the Next Big Thing in really important industries. Forty per cent of the funds we’ve raised have gone into medical technologies: stem cell research, fertility etc., and we are doing amazing things in important industries that have far-reaching consequences for human progress,” enthuses Mr Leyland.
“So, if you are someone heading into retirement and want to invest some funds into something that is much, much more powerful than just achieving a return, then you should consider investing in equity crowdfunding, you may even be powering the next generation of businesses that could improve the world.”
The chance to make a little money and maybe even change the world. When was the last time an opportunity like that presented itself to the ‘experts’ on Dragon’s Den?