<img src=”https://s3.amazonaws.com/mint-site-test/files/images/243/custom/Money_7-12_lo.jpg?1418033382” alt=”crowdfunding”” height=”1024” width=”682” />
Last week I wrote about us putting our latest venture on Crowdcube and how important we believe it is to allow everybody to participate in investing in startups.
Since then people have asked what I meant by that or why we believe this.
Over the past ten years I have made great returns (2x-10x) investing in tech stocks including LinkedIn, Facebook, ARM Holdings, Apple, Amazon, Ocado, and Yahoo. The only thing I’m down on is Twitter. I have never made returns like this in any other asset class including property, savings accounts or non-tech stocks. I don’t say this to boast but rather because I believe that in a globalised, connected world, the growth potential of technology enabled internet businesses in markets where there is no real reason to have more than one dominant product or service and in fact advantages to everyone using the same service (think LinkedIn) is unprecedented. I also believe in the late majority; that internet services that appear old-hat to people that work in the tech industry probably have far more room for growth than you’d think.
But these returns are small fry. They are puny compared with the returns made by the angels and VCs that invested in these and other tech businesses when they were startups. Those guys have probably made 100x+. To me it’s inherently unfair that retail investors (regular people) get to invest in tech stocks only once they float on a stock exchange. There are gains to be made but the ship has generally sailed. Uber is a great example of this. It has a multi billion valuation yet a regular person cannot speculate on it because there is no publicly tradable place for this investment to take place. If you called up Uber and said you wanted to participate in their next round and that you had £10 to invest, I’m pretty sure your call would not be escalated to the Board. So the big returns are only available to big investors. The rich get rich.
Crowdcube has revolutionised this in the UK. You can invest as little as £10 in startups. This is terrific for the investor because it has two distinct advantages versus any other asset class (bank accounts, bonds, the stock exchange):
The risk is very high but so is the return. How or where else could you make 100x your money?;
IT’S FUN - this is often overlooked but investing in early stage companies is one of the most fun ways of investing money. You can be that guy at the dinner party “oh yes a company I’ve recently invested in is disrupting the [insert name of attractive industry] space. They’re seriously smart guys” etc etc. You get an insight into ‘real business’, the turning of a nothing into a something. You become creative and innovative by association.
So if this type of investing is so great why is it still not commonplace around the world? The main reason is regulation. Most governments do not allow their citizens to invest in startups. The argument normally goes that citizens need to be protected from themselves. Otherwise everyone would be losing their life savings on some crazy startup. I think this is flawed thinking in a couple of ways:
I imagine most citizens do not want to lose their money and would be as careful about it as they would about making any investment (I lost money in the Icelandic banking crisis, I have since become more careful about any investment including opening a savings account);
There are hundreds of places where citizens could lose £10 -£1000. Any form of gambling establishment, a shop where you buy a coat you never wear, a restaurant that serves food when you’re not hungry, an online TV subscription service that you never use. Heck I think I’ve even had one or two bad haircuts in my life. Making poor choices with your money is a risk that exists across society everyday.
So viva equity crowd funding and viva the UK government for making it so. A secure place where regular people can participate in equity startups. It’s very important work and an important and hopefully growing tool for the redistribution of wealth.