Crowdfunding returns of early-stage businesses are outstripping those offered on the London stock exchange, according to new research.
While companies listed on the stock exchange yield 5% compound annual growth, crowdfunded firms are streaking ahead with a comparable return of 33%, says platform SyndicateRoom.
A state-of-the-market report also hints that investors have up to £25 billion waiting to invest in crowdfunding over the next 12 months.
The SyndicateRoom study showed that In 2011, 578 early-stage crowdfunded companies were valued at £1.8 billion, with an average valuation of £3 million.
By September 2016, the portfolio value had risen to £7.98 billion.
£10,000 investment grows to £45,000
An investment of £10,000 in early-stage companies in 2011 would now be worth about £45,000.
While wealthy investors see crowdfunding new businesses as a direct route to high returns, the flip side is one in 30 early stage companies will close.
SyndicateRoom’s survey also showed that 90 (15%) of the early stage businesses that were crowdfunded in 2011 had valuations written down to zero by 2016. Another 120 companies were worth less than in 2011 as well.
In total, 35% of early stage companies were worth zero or less than their opening valuations in 2016.
But the statistics are not deterring thousands of investors, who have an average of £20,000 ready for crowdfunding.
Breaking down barriers
The study also revealed that wealth y investors with £1 million or more ready to crowdfund were less likely to take an equity stake in early stage companies due to lack of financial and business information.
But they are 15% more likely to receive the heads up about an opportunity and 13% more likely to receive additional information about a company looking for funds.
“When we founded the company three years ago, we set off on a mission to provide fair and transparent access to investment opportunities by allowing retail investors to invest on the same terms as professionals,” said SyndicateRoom CEO Gonçalo de Vasconcelos.
“As we turn our attention to the opportunities for small business investment in 2017, we need to break down the barriers to this multi-billion pound opportunity we have uncovered, which is currently the preserve of the professional investment community.”