Tuesday, 8 November 2016

Equity Crowd Funding: Buyer Beware

Article from Bloomberg:

"You Too Can Invest In a Startup Likely to Go Bust"

Some snippets:

Of the more than 1,000 companies backed since 2011, only three have been sold. While it's normal for a high percentage of startups to go bust, critics are starting to wonder when the success stories will come. The lack of pay-outs, along with increased economic anxiety following the U.K. decision to leave the European Union, may already be cooling interest.

Three companies have sold after raising money on Crowdcube. Camden Brewery was bought by Anheuser-Busch InBev SA/NV for a reported 85 million pounds, nearly doubling what online investors put in. A car-sharing startup, E-Car Club, sold for about triple the original amount. Wool In The Gang, a supplier of knitting kits, was acquired for about the same price that investors put in; Crowdcube backers got  a gift certificate in lieu of payment.

Those numbers look absolutely horrible. Of course, in some of the remaining cases it is still too early to tell the result, the company can still be (highly) succesfull.

“You see the success of Google and Facebook and whatever, and you see what the share price used to be and there are all these stories if you had brought $1,000 worth of Facebook when it was a year old it would be worth tens of millions now. People see that stuff and they want to see if they can get their little part of it.”

The big question is, are these type of companies offered on the crowd funding platforms? Is it possible that the high quality, highly scalable, highly promising ones attract enough outside (VC) money, so they won't list on the crowd funding platforms, only companies "desparate" to get money will list?

Another question is, if there is sufficient enforcement in cases of fraud or misrepresentation, are there enough (realistic) legal opportunites for the investors to get back at the promoters?

Equity Crowd Funding suddenly has become more popular in countries like Malaysia and Singapore. Time will tell if the returns will be sufficient for the retail investors.

1 comment:

  1. nice piece there, whereas it has succeeded in some instances, it is not doing so well in others. as you say only time will tell.