Crowdfunding Success Stories Becoming More Common
Many of those investing online in mainstream regulated markets such as equities and funds may have also considered
Young companies are an inherently risky undertaking, both for those behind them and
In crowdfunding, start-up founders sell part of the equity in their business to sophisticated or high net worth investors from the general public in order to raise capital for expansion. It is a way to access finance at an earlier stage than it would be realistically possible to obtain a bank loan or attract a venture capital investor. For investors it is a high risk investment that offers the potential for a big payday if it comes off and the chance to back a young company they believe in, while accepting there is also a significant risk that they will lose the capital they invest.
However, as the market has matured, it seems crowdfunding investors have become more savvy and experienced in identifying strong prospects. Of the start-ups that successfully closed funding rounds in 2013, close to 50% have since ceased to trade. However, only around 15% of those funded in 2015 have since failed. 10 of those funded in 2015 have also achieved an exit already, providing a return to those who participated in their original crowdfunded raise. Only 2 of those funded in 2013 have achieved an exit.
As well as investors becoming savvier in choosing which projects to invest in there may be other factors contributing towards the improvement in fortunes. The websites that present start-ups for crowdfunding do initial due diligence. As they become more experienced there is a strong possibility they are getting better at selecting propositions. Also, as the route to finance has become more popular, start-ups have often managed to raise more capital through crowdfunding. More resources may be giving them a better shot at success.
Of course, making an investment through crowdfunding is still high risk but it’s good to know there is a growing chance that risk might just pay off!
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