Seed investments boom as small firms reap crowdfunding benefits

Study shows 35% jump in early-stage investments across 2013

Small firms are reaping the benefits of the ‘democratisation’ of early-stage finance, as the value of seed investments jumped 35% across 2013, according to a new report.

The 2013 Annual Equity Investment Review, conducted by ‘deep data’ business analyst Beauhurst, found that £1.5bn was invested into 650 fast-growing companies across the UK across 2013 – a rise of 35% on 2012.

Beauhurst said this rise was largely attributable to the ‘democratisation’ of seed funding enabled by the growth of equity crowdfunding platforms such as Crowdcube and Funding Circle, in addition to the incentive provided by tax schemes such as the Seed Enterprise Investment Scheme (SEIS).

The report claimed that investments concluded via these platforms increased eightfold over the past 12 months, as members of the public increasingly look to get involved in promising early-stage businesses.

The report comes as a further boost for the alternative finance sector, after the government announced it was investing a further £40m in equity loans site Funding Circle to provide further finance to small business.

However, the report found that whilst early-stage (seed) investing and later-stage (growth) investing had seen significant growth, middle-stage or venture capital investments lost market share during the same period.

Beauhurst said there was a ‘real risk’ that the drop in venture capital investments could stifle the growth of the promising batch of seed stage companies that will need investment over the coming years, and urged the government to look at ways it could stimulate this part of the market.

Dr Stephen Bence, chairman and co-founder of Beauhurst, said: “Over £1.5 billion was invested into 650 of the UK’s fastest growing companies in 2013.

“That’s small beer for a giant corporation but for our growing companies it’s the difference between getting the next Mark Zuckerberg out of his student rooms and onto the road to the FTSE 100.

“However, while early-stage and late-stage investment is very strong, middle-stage investment is losing ground. This is the traditional preserve of venture capital investors who are retreating to larger investments risking leaving a substantial equity gap.

“The Government – whose tax incentives have been instrumental in stimulating early-stage investment – needs to get a grip on this problem rapidly otherwise corporate seedlings risk withering well before maturity.”

 

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