One thing it seems some investors simply can’t get enough of is risk. And when it comes to investing in companies there is nothing quite as risky as investing in ones that are unlisted, illiquid, start-ups, that in some case have no revenue and no product.
But, with great risk comes the potential for great rewards. Equity crowdfunding has seen some explosive growth over the last few years as armchair Dragons look for a 10x or 100x exits in the next facebook or Google.
Thanks to some significant SEIS and EIS tax breaks investors can now access the seed rounds of early stage high-growth companies previously only available to VCs, institutions and professional investors.
One equity crowdfunding platforms has differentiated itself from the competition by offering investor lead pitches.
Here we talk to CEO Gonçalo de Vasconcelos about the platform he founded in 2013, SyndicateRoom.
Why did you set up SyndicateRoom and what’s been the biggest hurdle you’ve had to overcome as a start-up business yourself?
I set up SyndicateRoom because I was frustrated with how the offline process of raising finance worked – amazing companies with incredibly inspiring entrepreneurs struggled to raise finance, while at the same time investors struggled to find investment opportunities. I asked myself, why? There had to be a better way. Turned out there wasn’t, so I created SyndicateRoom.
Ironically, the biggest hurdle was to raise finance for ourselves. We were creating a brand new way of raising finance, and to do that we had to rely on funding raised using the existing offline process – it took us over a year to raise £150k. After we developed our new way, it took us less than 24 hours to raise £1.2m!
SyndicateRoom is unique in that it offers investor-led crowdfunding and early-stage investment funds. Why did you choose to structure the platform this way?
SyndicateRoom pioneered the investor-led model, whereby our members always invest alongside one or more lead investors. This model has so many advantages that sometimes I wonder why anyone would invest in any other way.
Firstly, the investment terms are negotiated by lead investors that are investing their own money after carrying out their own due diligence.
Secondly, it is common for the lead investors to help the companies succeed by taking a seat on the board of directors.
And finally, our members get access to the same class of shares as these lead investors. To me, it’s a no-brainer.
There has been a fair amount of growth (as well as consolidation) in the UK equity crowdfunding markets. Where do you see SyndicateRoom and the crowdfunding industry in general going over the next three to five years?
Equity crowdfunding is a superbly efficient way for companies to raise capital and for investors to find investment opportunities. However, it has to be done right. The vision, the ethical behaviour, the culture and the reputation of SyndicateRoom are some of the reasons why so many online investors use our platform – it’s about what we stand for and how we operate. I think the reputation of each platform is going to be the determining factor for their success. Hence, I expect SyndicateRoom’s future to be very bright indeed.
Whilst it may seem simple, early-stage investing is by its very nature very high risk, complicated and not for everyone. What advice would you offer to new potential investors thinking of investing in early-stage companies?
Early-stage investing is all about taking high risks for potential high returns. That’s why our investor-led model makes so much sense – you aren’t investing with a crowd, you’re investing with a lead investor.
The most important advice is to diversify. No matter how good an investment opportunity may be, there is always risk. Never invest more than you can afford to lose. If you are unsure about which opportunities to choose, you can always select a passive EIS fund such as Fund Twenty8.
And finally, what would be your top three online resources for new investors wanting to learn more about investing in start-up companies?
- The Invested Investor: Peter Cowley, one of the most active business angels in the UK, has a blog and a book worth reading
- Jason Calacanis’s personal blog on angel investment
- SyndicateRoom’s ‘learn’ area and our free guides and reports contain a plethora of information, from definitions to podcasts with well-known business angels