Perennial crowdfunding poster Clive Reffell recently posed a pertinent question. In the UK, the number of securities crowdfunding deals tanked in 2024. Reffell asked why this happened. “Is it too hard for retail investors to work out a required ROI?” Valid question.
Reffell referenced data from Beauhurst, which indicates that in 2024, the number of online securities offerings dropped to its lowest level since 2014. In 2021, investment crowdfunding peaked at 569 funding rounds. In 2024, there were just 297—almost half as many. The amount raised is also heading down; in 2021, £773 million was raised online, and only £324 million in 2024.
The trend has persisted since 2021, with each year seeing fewer deals and lower amounts raised, according to their data.
The Beauhurst reflects on the state of the securities crowdfunding market:
“More concerningly, the significant drop-off in investment figures in 2023 and 2024 — likely due to a combination of inflation and an increased cost of living — has meant that crowdfunding platforms are ‘feeling the pinch’ of an economy with slower growth.”
While educating retail investors is part of the equation, other variables are also at play.
Investing in early-stage ventures is inherently risky, as most young firms eventually go bust or just stagger along. The Beauhurst report finds that firms raising capital via crowdfunding are slightly more likely to go bust than those raising capital from VCs or other private equity firms. Deal quality has long been a point of discussion among firms pursuing online capital formation, platforms, and investors, which may help explain the decline in the popularity of securities crowdfunding.
Investing in private securities often requires patience, as these investments can be illiquid. Some investors prefer a quick way out if they so choose.
On the other hand, the British VC sector had a good year in 2024, according to research by the British Private Equity and Venture Capital Association (BVCA). The total amount invested by VCs, co-investors, and financial institutions was £9 billion in 2024, a 12.5% rise from 2023. The UK remains the leading jurisdiction in Europe for venture capital activity. So the appetite for private securities is rising.
So what is driving the decline in UK crowdfunding?
It is a combination of factors, including questions about deal quality, risk aversion, and economic hurdles for smaller investors—such as rising taxes.
One variable is that the world of investment opportunities continues to expand. Alternative investments are becoming ubiquitous, including the growing crypto ecosystem, which is now regulated. Investors have limited resources, and competition between asset classes matters.
At the same time, platforms engaged in online capital formation have responded to these challenges. Dominated by two platforms, Crowdcube and Republic Europe, both firms are offering a more diverse range of investment options. One new investment opportunity emerging from Republic Europe is with its Mirror Notes—assets that reference equity in well-known tech firms, made available to retail investors.
Crowdcube recently announced a partnership with LSEG, giving its investors access to later-stage, high-growth private firms listed on LSEG’s new Private Securities Market (PISCES). The London Stock Exchange is the first marketplace to be approved to operate a PISCES platform.
Secondary trading is enabled to various degrees by both platforms.
The two platforms are expected to continue expanding their user offerings and services as they seek to cater to investor demand. Change is constant, and investors are looking to manage their investments on fewer platforms, not many.
The BVCA makes an important point about supporting access to capital, which benefits online capital formation. The association asks the UK government to create a more internationally competitive ecosystem, while recommending that tax incentives such as EIS, SEIS, and VCTs be increased. (Continental Europe should do the same).
Excessive regulation can stifle even the most determined entrepreneur, and policymakers must be sensitive to this reality.
Entrepreneurs, take a huge leap to pursue innovation, create jobs, and potentially generate wealth. Sometimes a good idea turns into a great one. All policymakers must support venture markets and make it easier for investors who choose to back early-stage firms. This includes supporting smaller investors’ access.
While policies are in place to address some of these challenges, new initiatives are needed to keep the innovation engine running.
Online capital formation is — and should be — a key pillar of all innovation ecosystems. But for this sector to thrive, all its constituents must succeed. Issuers must be able to raise the money they need to execute on their vision; platforms must be sustainable —i.e., profitable —and investors must see a competitive return on their investment.