Once upon a time “crowdfunding” was not just a buzzword, but a widely misunderstood one. For a while it was synonymous in some minds with the idea of equity investment in small, highly speculative start-up businesses – many of which fail (as many as three in four after three years, according to some sources).
We at Money&Co. have been very selective in choosing established companies with a proven track record of profit and assets over which we can take a charge to protect our lenders. That’s one of the reasons our bad debt rate is so low (see below).
Meanwhile, our equity-based coins on the other side of the alternative-finance fence are consolidating.
Crowdcube and Seedrs are in the midst of a review by the Competition and Markets Authority (CMA) regarding the proposed merger between the two early-stage funding platforms. The proposed merger was revealed in October of 2020. At that time, Seedrs CEO Jeff Kelinsky stated:
“We are both Fintech pioneers that have challenged the landscape of capital raising in Europe, building marketplaces for private equity investment. We believe that you need to be a player of greater scale to serve companies and the investors who support them. Now is the right time to bring our strengths together, in order to meet our common mission to deliver a step change in the accessibility and efficiency within private company investing. This will not only create value for ambitious companies and their investors, but also for the economies and communities that they serve. As we look to the future, we’ll be well positioned to build on our combined strengths and create a powerful global private equity marketplace that will transform the ecosystem of equity finance globally.”
Darren Westlake, Crowdcube founder and CEO, added:
“Together with Seedrs, we can accelerate plans to further expand in the UK and overseas, launch innovative new products and improve our customers’ experience.”
Last week, the two securities crowdfunding firms responded to the CMA’s issue statement defending their intent to merge the two platforms warning the regulators that a decision to not allow the firms to combine could create a rather dire outcome.
While the CMA has initially viewed the merger of the two Fintechs as creating a dominant platform in an already small market, the truth may be much different as Seedrs and Crowdcube obviously compete with all private company funding options seeking to entice issuers and investors.
Seedrs and Crowdcube were created as forward-thinking Fintechs leveraging technology to match investors with private firms in a sector traditionally dominated by big money. Incumbents, such as venture capital firms, angel investors, funds, and other online capital formation sites, directly compete in the marketplace to fund early-stage firms. Seedrs and Crowdcube continue to lose money similar to platforms in other markets like the United States. By merging the two, the founders and management hope that a combined firm can more effectively compete in the UK as well as potentially in other markets such as continental Europe and perhaps elsewhere like Asia or the US.
Historical Performance And IFISA Process Guide
That figure is the result of over £20 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders’ capital is at risk. Read warnings on site before committing capital.
All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.
So here’s our guide to the process:
The ISA allowance for 2019/20 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We’re assuming a 7 per cent return, net of charges and free of tax here.
Once you have made your initial commitment, you might then consider diversifying – buying a spread of loans. To do this, you can go into the “loans for sale” market. All loans bought in this market also qualify for IFISA tax benefits.
Risk: Security, Access, Yield
Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.