DIY Investor Magazine
/
December 2015
28
Income from owning part of a start-up may be elusive
for the first few years of its existence.
Some companies will never be dividend producing, and
others will never aspire to be. The variety of investment
opportunities on each of the platforms allows members
to select one or more based on their criteria as an
investor. No two investments are the same, and there
are different risks associated with each.
Investing in any business, even FTSE100, is inherently
risky. According to the Telegraph, half of UK start-ups
fail within the first 5 years.
With the advent of equity crowdfunding, our attitude to
risk seems to have changed; collectively Crowdcube,
AngelsDen and Seedrs have funded equity pitches for
nearly 1,000 start-ups with thousands of individuals
investing.
These are unsecured investments, and while many of
the businesses will flourish, some are going to fall by
the wayside.
HALF OF UK START-UPS FAIL WITHIN THE FIRST 5
YEARS
That said, there is now more information available, and
a greater level of accountability than ever before: a
new company may have hundreds of shareholders all
fighting its corner.
Many equity crowdfunding investment opportunities
will have no predefined exit strategies so when you
will realize a return on investment is difficult to predict.
There may be an IPO in the future, but there is currently
no liquid marketplace for your investments. That doesn’t
make these bad investments and the government will
reward you with some lovely tax breaks for taking some
risk and backing non-listed UK businesses.
Property crowdfunding or ‘PropTech’ (a portmanteau I
think we will start to see and hear about more often) has
a slightly different model.
All funds raised are secured against a real property
asset. Members select the property they want to invest
in, based on their desired location and property type,
and all being well, they will receive returns derived from
rental income in month 1.
Of course, the value of the property can go down as
well as up.
Property Moose Founder, Andrew Gardiner comments
that members of the PM community are ‘not just
investing in one-off projects, but they are using it as a
regular form of alternative investment for income and
capital growth […] the reinvestment rate on our platform
is more than 78%, so we feel that fixed exits and regular
income is what investors are looking for.’
There are other platforms doing the same thing across
the world, with Fundrise in the US raising in excess of
$40-million to fund its own growth.
The potential for a dividend is much higher (easier to
tenant a house than grow a business!), And there is a
clear exit strategy: there will be no Apple or Facebook
style exits, but there will always be one.
