Crowd investors are more likely to base their investment decisions on information about the management team and product rather than on information about the company’s financials, suggest a report.
The report, by CrowdRating, the independent ratings agency for equity crowdfunding, looks at what information the crowd considers most important overall when evaluating investments, and discusses possible reasons for the crowd’s behaviour as highlighted by the research.
The report, ‘Observations on 2015 Crowdfunding Campaigns’, is based on data from 155 equity crowdfunding campaigns on which CrowdRating prepared ratings in the nine months from April to December 2015.
Major findings of the report include:
- More than 70 per cent of companies with a valuation over £5 million were successful, compared to 49 per cent of those with valuations under £5 million.
- Even seed stage deals, at 46 per cent of the total data set, where lower valuations are typically seen as more attractive, companies with higher valuations were funded successfully.
Using CrowdRating’s checklist-driven Ratings Engine, each campaign is systematically scored against three core criteria – Management, Product and Investment.
From its analysis of the data set, CrowdRating observed that crowd investors will usually recognise if a campaign has a really strong management team and, in particular, can spot a weak product offering; more often than not making an investment decision on the back of that information.
However, when considering the investment case, they appear to be largely indifferent to information on key financial areas, such as the valuation and projected financial performance, which appear to have little influence on the crowd’s investment decisions.
Modwenna Rees-Mogg, one of the report’s authors and a founder of CrowdRating, commented: “It was not entirely surprising to discover that the crowd focuses on the quality of management teams and products, not least because many campaigns and platforms put greater emphasis on this information.
“What is more revealing is the crowd’s apparent indifference to the financials. We believe there needs to be a broader industry debate about the positioning, quality, and analysis of financial information within a campaign.
“There is a need for more discussion around if, and how, investors should be encouraged to pay more attention to financials as part of their overall investment decision making.”
