DIY Investor Magazine
/
2015 Issue
20
Those of us old enough to remember life before the
internet sometimes forget how much life has been
changed by it. I’m not going to bore you with a list of
industries affected; you’ve seen that list 1,000 times.
What I am going to tell you is that crowdfunding has
been made possible by the existence of the internet
and is worthy of your consideration for inclusion within
your investment portfolio.
Crowdfunding seems to be a catch-all title that covers
many different things so as a starting point, allow me
to give you a tour of the current UK landscape, so that
you might better understand where you might want to
put your money to work, to match your investment and
risk objectives.
The Three Flavours of Crowdfunding - Rewards, Equity
& Debt.
REWARDS
Since DIY Investor is an investment title, let’s not
dwell too long on rewards based crowdfunding,
needless to say that there’s no better example of the
difference between rewards crowdfunding and equity
crowdfunding than Oculus.
Oculus raised money to launch through rewards site,
Kickstarter. It offered a t-shirt and early model of Rift, a
Virtual Reality 3D headset to 10,000+ backers and was
subsequently sold to Facebook for $2bn, perhaps those
backers would have liked to have had even a smidgeon
of equity in the company at that point. To be fair to
Kickstarter, it’s a rewards site, the backers weren’t short
changed; they got exactly what they were promised. I
still can’t help thinking that had they have been able to
RETURNS THAT STAND
OUT FROM THE CROWD
take equity instead of the headset their return would
have been 145x, the $300 contribution becoming
$43,500.
EQUITY
You already know about the concept of equity, with
equity crowd funding, each member of the crowd
receives a slice of ownership in the company that they
invest in.
We can dig into the differences between platforms like
Crowdcube, Seedrs, Angels Den & Property Moose in
a later article. What you need to know is that not all of
the private companies raising money this way are going
to make it and that the value of your investment can go
either way.
Right now there are just less than 160 private
companies raising capital on equity crowdfunding sites
in the UK (source: crowdwatch.co.uk). Some are start
ups, some more established.
You need to consider that these companies are not
easily tradable, so whilst getting in is as a few clicks on
your MacBook Pro’s keyboard, getting out may take
some time. Its good to know that the vast majority of
investments in companies on these platforms qualify
for EIS or SEIS tax relief, think of it as the Chancellor
thanking you for taking a risk and backing small
business, the backbone of the UK’s economy.
Adam Braggs,
Managing Director
It could clearly have a massive impact on
its share price, if Buffet said ‘buy Tesco’.
