UK equity crowdfunding is still a nascent industry, with enviable market growth: Knowledge Peers reports a 95% increase (from £21 million to £41 million) on the total funding raised through equity crowdfunding in the past six months.
With such attractive growth prospects, it is little wonder there has been a rush of new entrants to the market. However, Knowledge Peers forecasts that the number of new entrants will slow in 2014 as key players become more established and the market consolidates. Knowledge Peers also states that exits are likely to occur; platforms will drop off as the market matures and the strong get stronger, the weak weaker.
While the growth in the market as a whole is impressive, here at SyndicateRoom we’re proud to celebrate that we’re outpacing it! Knowledge Peers has named our platform as the ‘UK’s Fastest Growing Equity Crowdfunding Platform’ (based on cumulative quarterly funding points).
Tania Ziegler, Programme Manager: Alternative Funding Network at Knowledge Peers said:
‘Since the end of 2013, the cumulative growth of funding executed by equity crowdfunding platforms in the UK has just about doubled, showing an increase of 97%. One player, SyndicateRoom, has proven that the industry standard is just not fast enough for them! As a quickly growing platform, SyndicateRoom has increased by a staggering 203% against the same timeframe. This makes this equity platform the fastest growing platform in the space and within the top five platforms in terms of scale, according to our data.’
In the past six months, we have also helped to close rounds of more than £6 million, and our ‘success rate’ far surpasses the market standard. In the same six months, we successfully funded 90% of our deals, while the industry average for Q1 2014 is 31%.
So what, in our opinion, is the key to these successes?
Standing out from the crowd
At SyndicateRoom, we mark ourselves apart by only listing companies that have the backing of professional investors or ‘business angels’. As a result, we provide our members with the knowledge that each company available for investment has been backed by professional, experienced investors, who are putting their own money at risk.
Looking beyond just our own business model, we identify a few key strategies for success:
1. List interesting and/or socially compelling companies
Although investors are obviously motivated by financial gain, they also like to invest in companies that have a compelling and/or social cause. For instance, Crowdcube’s Stickyboard – a site that provides web development services with the aim to improve online promotion of community projects – has recently received overfunding, while some equity crowdfunding sites have even used this theme to create a USP; for instance, crowdmission.com only lists companies that are driven by a ‘social mission’.
2. Protect investor rights
We take investors’ rights very seriously, and firmly believe that they should invest at the same price per share and the same class of share as professional investors; that means pre-emption, voting, tag-along and drag-along rights on all of our deals. As the equity crowdfunding market matures and, in the future, funded companies evolve, perhaps reach second rounds or even exits, whether a platform has put its investors’ rights at the fore will become increasingly apparent and thus more publicly scrutinised.
3. Be transparent and compliant
Following on from the previous point, the best way to ensure investors are correctly protected is for platforms to be FCA regulated and authorised. The FCA has already turned a greater spotlight on the equity crowdfunding industry in the last year; this will continue. While it is not a legal requirement for equity crowdfunding platforms to be directly FCA authorised, we made a decision early on to go through this process to demonstrate our commitment to honesty, openness and compliance.
4. Make people’s lives easier
Equity crowdfunding platforms are, after all, consumer-facing services. In an increasingly digitalised age, consumers rightly expect a slick and easy-to-use platform as a given. As the market consolidates and awareness of key players in the industry grows, consumers will increasing know where to defect, should they come up against an unfavourable experience.
It is an exciting time to be involved in the industry as it works its way through adolescence. We expect many changes to befall equity crowdfunding over the next five years. Yet by ensuring we treat our investors and listed companies with transparency and fairness, we believe we are placing ourselves in a strong position for the future.