Investments

Secrets Of How Crowdfunded Firms Perform Revealed

The first analysis of how crowdfunding investments are performing shows deals are giving investors an average 14.44% annual return.

But close to one in five entrepreneurs who raised business finance through platform Seedrs has failed to grow their business.

The details were published in a portfolio update offering facts and figures about equity crowdfunding that gives investors an overview of how the sector is working – and a look at the risks and rewards.

Seedrs have opened their books on 253 equity crowdfunding deals financed by the platform since July 2012.

In that time:

  • 93 deals (36.76%) have seen share prices rise in value
  • 113 (44.66%) have not risen or fallen
  • 47 (18.58%) have seen share prices fall

In plain-talking, just over a third of deals have prospered, while the rest have either not gained or lost value.

Genuine valuations

Seedrs does point out that those with 20 or more investments had a slightly better return than other investors –  showing a 15% gain.

The returns are notional valuations at this stage as many of the deals are at an early stage in their life-cycle. Chief executive Jeff Lynn explains that they offer ‘a genuine reflection of the current value of investments’.

“A market-wide internal rate of return of 14.4% is significantly higher than what can be expected from most other asset classes. That, of course, is how it should be: this is a riskier and more illiquid asset class than most, and the returns need to compensate for that,” he said.

The report also gives investors an insight into the best and worst performing businesses.

How crowdfunded business perform

The best performers[i] are food and drink businesses, with a 22.77% return. Next are home and personal companies (17.77%) and financial firms (16.91%).

Despite pursuing alternative online investment, businesses with a mixed digital and offline element have outshone digital or non-digital companies, while hybrid business to business and consumers have better returns than pure B2B or B2C concerns.

Seedrs says 40% of deals – roughly 100 companies – have followed the hybrid digital/offline model, while only one in 10 have business and consumer customer bases.

The most popular business sectors with backers were food and drink, finance and travel and sports companies.

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