Brexit blamed for fall in crowdfunding deals

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Financial Times | Aime Williams | Aug 2, 2016

Post-Brexit slowdown Crowdfunding platforms have experienced a slowdown in deal flow for the first time in five years, in a sign that “armchair investors” are taking a more cautious approach to alternative investments.

Crowdfunders, which provide online platforms allowing retail investors to take equity stakes in small unlisted start-up companies, form part of the UK’s burgeoning “alternative finance” ecosystem.

However, the number of investments offered online fell 17 per cent in the first half of 2016, compared with levels seen in the last half of 2015, according to research company Beauhurst.

The fall follows 10 consecutive half years of growth in terms of the number of deals offered to investors.

In value terms, Beauhurst found that crowdfunding platforms raised £87.4m in the first half of 2016, a drop of just over 4 per cent from the £91.3m raised in the previous six months. However, these numbers also include institutional investments in deals offered on crowdfunding sites.

“Equity crowdfunding relies mostly on armchair investors, who will presumably be quicker to retrench their investment activity when they’re fearful, and are therefore good real time gauges of investment sentiment,” he said.

Beauhurst’s data also show that venture capital and private equity firms slowed investment into UK start-ups and high-growth companies in the same period. Including these sectors, Beauhurst recorded a 20 per cent fall in the overall number of investment deals. Investment from institutional investors is now at the lowest level since the beginning of 2013.

See:  Never mind the Brexit — crowdfunding platform Crowdcube is raising £5 million from its members

Mr Madeira said the broader figures painted a “somewhat bleak” picture for equity investment in the UK’s high-growth businesses.

Bruce Davis, spokesman for the UK Crowdfunding Association (UKCFA), the trade body of crowdfunding platforms, said the dip in deals offered was just “a pause”.

“The market has had a slowdown because of Brexit, but we’re still taking a large share of the market,” he said. “We should expect some sort of blip around Brexit, we’re not immune to the economy.”

The UKCFA said it was confident deal numbers would begin to grow again. “The key to that will be strong signals from the government on strategy to see where it wants to see growth and investment,” said Mr Davis. “[Crowdfunders] are best placed to deliver that into the real economy.”

Peer-to-peer lenders, who make up the bulk of the “alternative finance” sector alongside equity crowdfunders, have also recently seen a slowdown in investors looking to lend to small UK businesses or consumers.

The UK’s financial regulator recently announced a consultation into both kinds of alternative finance company.

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