Crowdfunding – equity crowdfunding in particular, has been under the microscope lately, with “next misselling scandal” not far from mind. All but the most confident investors have remained cautious.
Yet throwing caution to the wind a little could have seen some investors generate some pretty strong results.
New figures from one of the largest equity crowdfunders, Seedrs, show the returns on the platform between its launch in 2012 and the end of 2015 generated an annualised rate of return (IRR) of 14.44 per cent.
Against stormy waters in the FTSE and virtually stagnant savings rates, such returns could offer a good alternative for braver investors who can afford to invest amounts they are happy to lose.
Seedrs has outlined some key trends across its three-years’ worth of deals:
- Roughly 40 per cent of Seedrs’s deals have been for digital businesses, and 20 per cent for non-digital. The remaining 40 per cent have been hybrid digital/non-digital models.
- Nearly 60 per cent of its deals have been for consumer facing businesses, with 30 per cent for business-to-business.
- Of the 15 sectors that the platform operates in, the three most popular in terms of number of funded deals have been food and drink (11 per cent of deals), finance and payments (11 per cent) and travel, leisure and sport (10 per cent).
How do the returns compare against other investments?
- The annualised performance across the platform of all its 253 deals in terms of share price appreciation (net of fees), as of 31 July 2016, was 14.44 per cent (on a non-tax-adjusted basis). When the impacts of tax reliefs and liabilities such as EIS and SEIS are taken into account, this goes up to 41.87 per cent.
- Investors on the platform who have built portfolios of 20 or more investments have, on average, outperformed the platform’s overall performance. They have achieved an average 15.01 per cent non tax- adjusted IRR (tax-adjusted: 43.39 per cent).
- A typical savings account has returned 1 to 2 per cent annually over the same period.
- The FTSE All Share has returned an average annual 5.4 per cent over the last ten years.
But becoming a crowdfunding investor involves jumping through several hoops before you can be trusted to know what you are doing. Seedrs now puts potential new sign-ups through a quiz, testing their knowledge of risk, return and investing. You only get to become an investor if you answer all the questions correctly.