Equity Crowdfunding

E ver thought about tap- ping into the private market? With platforms such as Seedrs, Crowdcube and Syndicate Room, re- tail investors are now able to buy se- curities from small to medium-sized enterprises (SMEs). As its name suggests, Equity Crowdfunding is a method of acquiring capital through selling securities on a digital plat- form. During the recent years it has steadily grown traction and has par- ticularly grown prominence during this pandemic with the annual market value of equity based crowdfunding rising by 15.6% to £549 million in 2020 (Statista Research Department, 2021). Unlike the alternatives to pri- vate equity, Equity Crowdfunding enables ordinary people to invest into the private market, which com- pletely changes the investment land- scape for private markets. But why is it the future for private equity? Accessibility Equity Crowdfunding enables wider access for both retail investors to invest into the private market, as well as SMEs to acquire funds. Due to its low barrier to entry, it can help improve the diversity in both the investors and SMEs as it is easier for those from underrepre- sented backgrounds to participate. In addition, because of its online platform, it helps eliminate any geo- graphical constraints and reduces the reliance on social networks, which provides a more even playing field.

Democratising funds It provides a platform for business- es to accumulate capital across a large crowd and as mentioned, also allows ordinary people to invest. Therefore, it means that a lot of smaller investments take place and the equity is less con- centrated across a few high net worth individuals. For example, someone like Jason Calacanus, an angel investor, was able to invest $25,000 into Uber and re- ceive $125 million in return. However, if 125 different people were able to in- vest $200 each into Uber, then each of those 125 individuals would receive $1 million in dividends (Marquis, 2021). Thus, it encourages more democ- ratised funds and therefore profits.

Community Often, many of the retail investors will look at investments from a con- sumer point of view rather than from an investors point of view, meaning that the majority of a SMEs retail investors will eventually become their customers as well. This provides SMEs with the opportunity to build a community that can back them up. This community not only provides an easier way to network and promote their product through the spread of word, but enables them to re- ceive guidance that is consumer-based.

Market validation As mentioned earlier, the ma- jority of retail investors will also be- come consumers. Therefore, Equity Crowdfunding enables both SMEs and investors to see how well the market responds to the product. Seeing how well their campaign is doing is not only evidence for the de- mand for their securities, but also a good indication of a product market fit, meaning that the product can eas- ily satisfy a strong market demand. Impactful investment. Equity Crowdfunding can also provide the opportunity for more socially con- scious investment as well as more sustainable practices from SMEs to take place. Generally, many retail in- vestors will invest for the social im- pact they may have, rather than the financial returns, therefore, Equity Crowdfunding can help provide a platform to foster a more sustain- able culture in these early-stage businesses. Overall, the pandemic has already changed the way we interact with the economy and the rising demand for Fintech is only a testament to its potential prominence in the future. In addition, the pandemic has pro- vided us with an opportunity to reshape our economy with innova- tive solutions, therefore investment and growth in SMEs has never been more important. Thus, it is likely that this upwards trend in Equity Crowdfunding won’t slow down any time soon, and it will have the poten- tial to play a pivotal role in transition- ing into the post-pandemic world.

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You might think there was some fraud here, you know the usual: un- dermining some risk somewhere to fill their pockets and it backfires in the same old wall street fashion. But,as much as I would love