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I am delighted to be joined on the show today by Goncalo de Vasconcelos CEO and founder of Syndicate Room who are one of my must-know-about equity crowdfunding platforms as they have originated an “investor-led” model of equity crowdfunding which has some powerful advantages.
As I have previously mentioned equity crowdfunding seems to me to occupy this triangle whose three vertices are spivs, “pile ’em high and sell em cheap” and professional. No-one resides at any of the vertices and the whole thing is in evolution.
Maybe I should be clear what I mean by professional … there are plenty of professional firms out there … but I mean more “professional in the way that well established stock exchanges are”. The London Stock Exchange or Deutsche Boerse eg I would say are pretty professional. Fintech as a whole hasn’t got there yet [although as we heard in LFP023 I think B2B-FX is the most professionalised subsector of fintech]
Syndicate Room are definitely one of the few fintech equity crowdfunding firms nearest the professional vertex in my opinion.
Their interesting business model innovation is investor-led crowdfunding (as opposed to company-led which is the general model). All of their deals are led by an experienced angel investor who has a personal stake in the deal – no doubt far higher than you or I who in essence co-invest alongside. Thus he has conducted his own due-diligence, price negotiation etc before investing.
Topics discussed include:
– Goncalo’s background in Civil Engineering and journey from there (and Portugal) to the UK and crowdfunding
– the origins of the idea of investor-led crowdfunding as being Goncalo’s desire to invest alongside experienced angels but not being able to
– the problem at the time was that the process was not efficient enough – so it would eat up a huge chunk of the investable funds
– in essence Syndicate Room expands the ability of small investors to co-invest (from £1,000 upwards) alongside experienced angels
– equity crowdfunding as the future of equity finance as it can be a very efficient process
– the importance to the economy and entrepreneurs/small companies of a far faster and more efficient process for raising equity. The existing process could take 6-12mts which is a huge time in todays fast moving world
– conflicts in deals between different classes of investors – eg and esp VCs and angel investors
– other equity crowdfunding models are “company-led” – ie the company sets the terms – especially the price (which is a mild version of a potential conflict of interest). The investor-led model is led by the results of a negotiation between lead investor and the company and potentially removes this conflict of interest between the company (ie earlier investors) and the crowd
– the difficulties of the concept of “valuation” in equity per se even for the largest companies let alone small companies
– what business angels are really like … nothing like the negative stereotype that the (taxpayer-funded) BBC in particular (for some bizarre reason) likes to portray. See Goncalo’s article “Forget the Dragons – Welcome To The Real World Of Angel Investing”
– the positive but thin evidence about angel investment returns; the more extensive evidence for poor returns for VC over a long period
– what does diversification mean? And in particular the misapplication of diversification in equity crowdfunding in general if sector returns are poor
– does it make sense to talk just about assets without taking into account the process of investing in them? Eg “spray and pray” passive buying of deals vs “focused/researched” angel investment
– risk in equity finance – pricing, due diligence, A/B/C shares… My article on AltFi News covering these (and more) “Risk in Equity Crowdfunding – Oh Dear What Can The Matter Be?”
– the pros and cons of comparing equity investment to gambling 🙂
– the transparency of the whole industry around data being very very poor right now – eg what the due diligence is, how much has been raised, what percentage of companies have failed, what percentage of listings get funded etc
– on the latter Syndicate Room has a record of over 80% of businesses that they have listed get fully funded; they suspect the – unknown (?!) – industry average might be as low as only 10-12% get funded
– of the 30 firms that have raised equity via Syndicate Room all are still going
– the need and value of an independent firm collecting all the data and producing indices and metrics
– Syndicate Room tends to attract more sophisticated, technical businesses with a lot of IP that can protect their competitive advantage – eg 1/3 of their deals are in healthcare, 1/4 in engineering.
And much much more!
A must-listen to episode for anyone with any interest in equity fund-raising or investing 🙂