‘If you’ve got £10,000, don’t invest in one start-up…
…Put £100 into 100 start-ups!’
A Philosophy of Caution that Keeps the Fun in Equity Crowdfunding
LINK TO ARTICLE REFERENCED : http://www.ft.com/cms/s/0/3ba47796-7624-11e4-9761-00144feabdc0.html?siteedition=uk#axzz3RRxevVJI
‘Equity Crowdfunding Thrives Despite High Risks’ – the headline of Judith Evans’ article in the FT last December was music to my ears (FT 7th December 2014). Ok, that was a while back – but I came across the piece while foraging for background information relating to my previous blog piece and I noticed that it includes a very telling quotation from Stephen Hazell-Smith, co-founder of the London Stock Exchange’s AIM (Alternative Investment Market) and now, I’m very proud to say as recently announced, chairman of my own company Businessagent.com.
In the context of discussions about equity crowdfunding compared to venture capital and the risks of the former, he says it ‘…brings democratic transparency to funding companies. For me, it’s doing what AIM didn’t manage to do.’
The sheer range of Equity Crowdfunding opportunities out there still surprises me– and it seems to me that Stephen hit the nail on the head with his comment about democratisation. The big institutional investors are sitting up and taking notice of equity crowdfunding – the article cites the excellent example of the Chapel Down Winery. Listed on the ISDX market it has raised £3.95 million through crowdfunding, which few of us would describe as chicken feed.
It was nice to see a mention of Rachel Wardle’s and her pitch ‘Datemy’, as I met her in person at a Crowdfunding event last year, in fact our Marketing Director, Hannah was one of those that invested. For me, the smaller stuff can be extremely exciting - the very idea of investing modest amounts as much for the fun of seeing a great idea come to fruition as to make money. And here Julia Groves, Chairperson of the UK Crowdfunding Association, has some words of wisdom that any investor would be well advised to heed. Pointing out that many equity crowdfunding websites make clear (as they should) that up to 90% of start-up businesses pitching for funds will fail, she says, ‘That’s why you take a portfolio approach. No one is suggesting you put all of your money into a single early-stage business… You invest in 10 projects and [hope that] one of them does fantastically well.’
And in the same article Jeff Lynn, Chief Executive of the crowdfunding site Seedrs adds, ‘If you’ve got £10,000, don’t invest in one start-up… Put £100 into 100 start-ups!’
I couldn’t have put it better myself. And what’s more, as well as being a more cautious way of investing by diversifying investments through equity crowdfunding, that philosophy sounds much more fun!
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