Equity-based Finance Saw Significant Growth in 2017 in the UK

The volume of equity crowdfunding in the UK is on an upward trajectory, according to the latest findings of the 5th UK Alternative Finance Industry Report by the Cambridge Centre for Alternative Finance.

Equity Crowdfunding upward Trajectory

Upward Trajectory. (Source: 5th UK Alternative Finance Industry Report.)

In absolute terms, the segment grew from £3.9 million in 2012 to £333 million in 2017 as the sector has become an established source of funding for seed and early-stage businesses.

volume

“Early-stage equity investment is volatile and cyclical. Unlike in the loan-based crowdfunding segments, sector maturity is unlikely to be a significant contributor to slowing growth in this segment of the market.” (Source: 5th UK Alternative Finance Industry Report.)

However, 2017 also saw the rapid growth in conventional seed and VC capital which eroded the crowdfunding platforms’ share of all equity funding passing from 17.6% in 2016 to 12.9% in 2017 (-4.7%).

The Pace of Institutionalisation

In terms of investor’s typologies, though retail investment remains the main driving force of alternative finance volumes, institutional investors also contributed significant sums showing the equity crowdfunding the highest levels of institutionalisation.

The pace of institutionalisation accelerated significantly in Equity-based Crowdfunding over the last three years, from just 8% in 2015 to 25% in 2016 and 49% in 2017. This upward trend is driven by the growing ‘co-investing’ activity on Equity-based Crowdfunding platforms, where venture capital firms, professional investors and retail funders co-invest in crowdfunding rounds.

The Pace of Innovation

On average, platforms are budgeting 14% of their operating costs towards Research and Development.

Platform innovation has focused so far on three principal areas, the main priority being efficiency enhancements, followed by customer service and customer experience improvements.

In particular, CRM improvement is an area of focus for 55% of equity crowdfunding platforms.

Moreover, most equity crowdfunding platforms altered their product offering in some way. Overall, 42% ‘only slightly’ altered their products, while 33% of platforms significantly altered their products.

product and business model innovation

Product and Business Model Innovation in Equity Crowdfunding. (Source: 5th UK Alternative Finance Industry Report.)

Concurrently, most platforms also made some sort of change to their business models in 2017. A clear majority of platforms, 64%, only made slight alterations, while 9% made significant changes.

Download the full report here.

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