With 2016 drawing to a close, Crowdcube co-founder Darren Westlake sums up what’s been a remarkable 12 months, and gets out his crystal ball for the year ahead and crowdfunding in 2017.
What a year 2016 turned out to be, in more ways than one. The expression “always expect the unexpected” could best sum up what’s been a strange year.
In the 12 months when we saw people vote to leave the European Union in the UK, we also saw American voters go for the controversial choice of Donald Trump as president.
In business, events were a little more predictable, but no less exciting. In the world of crowdfunding, where we ended 2015 with two exits and multiple returns for investors, 2016 continued the trend with a third exit in just 12 months, thanks to disruptive fashion brand Wool and the Gang, which sold to BlueGem Capital Partners.
At Crowdcube, we predicted that investment rounds would get bigger in 2016, with the average amount raised going up. Crowdcube topped the list with a £6.7m raised, followed by the likes of fintech pioneer, goHenry raising £4m and Brewdog Bond, which has currently raised over £5m and is set to raise more in January 2017.
We also said that crowdfunding in 2017 would cement its position as a mainstream route to funding, rather than being seen as “alternative investment”. Plus, we forecast a continued trend towards crowdfunding forming part of larger venture capital (VC) investment rounds. Fintech pioneers Monzo and Revolut both raised around £1m from the crowd at the same time as gaining venture capital backing from Passion Capital and Balderton Capital respectively.
It was interesting to see that the respected London School of Economics confirmed our view that crowdfunding investors are a sophisticated and smart bunch of individuals, with its study earlier in the year showing that investors behave in an economically rational way.
Crowdfunding’s greatest strength is the diversity of its investor community, which builds a collective wisdom that gives the crowd the ability to identify and back the best businesses.
So, 2016 was a year of contrasts and contradictions in many ways, but what has 2017 got in store for the world of investment?
Specifically, in the world of crowdfunding in 2017, we expect to see more businesses coming back to crowdfunding for follow on investment and as part of Series A and B funding rounds alongside venture capital and institutional investors.
I am confident that 2017 will also see investors continue to share the spoils, with more returns thanks to trade sales and potentially even IPOs – a further indication of how the crowdfunding industry is maturing and the diversity of returns that crowd investors can expect to receive.
Transparency in the industry will become increasingly important – in fact, critical for both the businesses raising funds and also investors putting their money into them. We need a level of due diligence, disclosure and reporting that all parties – entrepreneurs, investors and regulators – can understand. This will allow the industry to continue to mature. We will see a much more unified approach by the industry and potentially the development of a standard that sets out the required operating principles and a common portfolio performance methodology.
According to Beauhurst, which provides data and analysis of investment into UK startups and growing businesses, technology is still the sector most likely to secure investment via crowdfunding, so what will the next wave of investment opportunities be? I predict a growing appetite from investors to back businesses in the fintech sector especially, an exciting prospect for this country given its position as the centre of fintech innovation.
In the wider business context, we will almost certainly see come fallout from the EU referendum. There is going to be a lot of political maneuvering and posturing in the next year, but businesses and business owners are just going to have to get on with it.
We can expect to see more public displays of affection by the government to appease disgruntled “Remainers”. To some extent we’ve seen this happening already with Philip Hammond announcing plans in last month’s Autumn Statement for £400m of VC funds for growth-stage businesses in the UK.
While a good start, I believe that limiting this much-needed cash injection to traditional VCs is shortsighted and fails to recognise the impact of crowdfunding on businesses in this country. Here’s to a successful 2017!
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