The Deal from Beauhurst: Crowdfunding Platforms Emerge as True Alternative for Later Stage Finance
The most recent edition of the Deal, published by Beauhurst, includes some disappointing news. According to the UK research house, investment in UK startups has dropped by the largest amount in 5 years. Beauhurst reports that the number of deals declined by 18% during 2016. This is the first time that has occurred since Beauhurst started tracking the sector. Until 2016, equity investment had increased every year since 2011.
Some significant bullet points from the report include:
- The number of UK deals dropped by 18% to 1203 during 2016
- Overall investment declined by 12% to £3.5 billion
- The number of crowdfunded deals decreased by 14% to 301
- The average size deal increased 5% to £3.7 million
- Beauhurst suggests that Brexit has had little to no short term impact. Long term impact is inconclusive.
Despite the decline in the number of deals and overall totals, the average deal size has been increasing since 2013. This is due in part to the maturing of the investment crowdfunding industry as later stage companies take advantage of raising capital online. Beauhurst states;
“Crowdfunding is emerging as a real alternative at the later stages of growth. Despite an overall decline in crowdfunding deal numbers, crowdfunding at the growth-stage increased 10%, with 80% of these companies crowdfunding for the first time.”
Beauhurst said there is a real reason to be optimistic about investment crowdfunding. Jeff Lynn, CEO and co-founder of Seedrs, stated;
“2017 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… Where we are today is roughly where peer-to-peer lending was when institutional investors first entered that space.”
Crowdcube was quoted in the report;
“From our discussions with entrepreneurs, it is clear that many put fundraising plans on hold in anticipation of the referendum…It’s encouraging to see that the crowdfunding industry is outperforming the market.”
Crowdfunding platforms dominated the investment sector. Seedrs and Crowdcube were responsible for a solid 21% of equity investment deals in the UK during the year. These two platforms enabled more transactions than any other investors in the UK while being responsible for 86% of all crowdfunding activity.
Beauhurst also shares some insight into companies that raised capital in 2011 without referencing the method the capital was raised. The report says that of the 2011 vintage of 658 companies 134 or 15% have experienced exits.
- 18 companies publicly listed their shares, predominately the LSE AIM
- 13% or 116 businesses have been acquired or merged
- Regarding total valuation of the portfolio, there was an increase of 328%
- 13% or 114 companies were classified as dead
Beauhurst states;
“The chances of a successful exit are high across all-sectors: the most likely kind of exit is an acquisition by another UK company. The chances of failing (after five years) are lower than the chance of exiting. Some sectors are more prone to failure than others, while companies that have received public grants are less likely to fail. Even if companies haven’t been acquired or floated (or gone bust), on average their paper value has increased.”
This is really an interesting report. While the data pointing to a decline in early stage equity investing is disappointing the success rates and comments on crowdfunding is a shining light for early stage companies.
The Beauhurst report is embedded below.
[scribd id=338877628 key=key-4a0CNF6ri1RVX7wGUf5U mode=scroll]