How the sharing economy is set to benefit the world of early-stage investment
Sharing isn’t a new way of life – the renting or lending of assets is a concept that’s been around for centuries, but it’s no exaggeration to say the modern sharing economy model, enabled by digital, is rapidly transforming traditional industries. A recent report, published by the Warwick Business School, states that 78% of the British population has taken advantage of the sharing economy in some way. Beyond the obvious examples of transport, sharing goods and hospitality (with Uber, Fat Llama and Airbnb leading the field), this has grown into an industry predicted to be worth $935bn by 2025 and has penetrated all areas including fashion, healthcare, consumer goods and property. While these are still early days in the sharing economy, the potential it holds for all industries – including early stage investing – is massive.
How the sharing economy will benefit the world of investment
The investment world – traditionally a disparate landscape, with regional groups or clubs of investors and companies needing to seek finance through brokers – is becoming increasingly connected with the introduction of sector and geography agnostic digital platforms.
Connectivity, delivered via these digital platforms, enables sharing. Trends indicate that for investor networks and groups, opening up their metaphorical ‘doors’ – sharing and distributing deals and information across networks – will soon become the norm within the investment sector. The benefits are myriad: investors will get access to more opportunities without having to join multiple networks, scale-ups will have a greater chance of raising funds through increased exposure and networks will have the ability to better support their investors and companies, without sacrificing control or having to increase resources. The beauty of this is that it benefits every single player in the market.
1 Scale-ups: A greater chance of success
The UK’s infrastructure of world-class universities, incubators and accelerators has fueled the unprecedented growth of start-ups in recent years. This has produced a vast – and occasionally overwhelming – array of investment opportunities, resulting in a highly competitive space for businesses seeking funding. Couple this with the challenge of disconnected and closed investment networks and you have a difficult task if you’re wanting to access as many potential investors as you can. For many it means signing up and paying fees to multiple networks and then taking on the burden of managing all of them.
Increased deal distribution – enabled by sharing at the touch of a button – means that the entrepreneur can sign up to a single network, thus lowering the administrative burden but still getting the benefits from the ability to access other connected networks – and their investors. With a bigger pool of investors viewing the deal, the chances of reaching their funding target increase dramatically.
2 Investors: Increased deal flow and more diverse portfolios
The increase in investment opportunities over the past ten years has conversely led to a rise in niche networks, such as those whose focus is specifically on a certain sector: cleantech or businesses founded by women, for instance. This is not necessarily a bad thing, though it has led to further fragmentation of the market and if investors are to have a diverse portfolio – the golden rule when seeking a return on their investment – they must either join multiple networks or risk missing out. This takes time and a great deal of legwork; when deals are shared, however, this issue is solved.
Consider this example, John is a member of a cleantech Investment Network who curates the best opportunities in the space. Dorothy is the founder of a rapid-growth clean tech business that is seeking finance through a Women’s investment club. If the Women’s Investment Club shared the deal with the cleantech network, both Donald and Dorothy, who are a great entrepreneur-investor match, win. The two networks, who have helped their investor and entrepreneur, also win.
3 Networks: Diversifying their members’ portfolios
Investment networks want to help their companies be successful and help investors build a strong portfolio. Deal sharing significantly increases the chances of both of these things happening – without requiring the network to increase deal flow or trying to add more and more investors to their network.
At the click of a button, they will be able to showcase opportunities to other networks, quite literally creating a ‘network of networks’, regardless of sector or geography. It’s worth noting that foreign investment is an important factor to consider – particularly in our current time of political and economic uncertainty; in 2018 alone, British businesses received £6bn in direct funding from overseas and the UK remains the most attractive destination for foreign investors, so the benefits of sharing deals with networks in different territories are obvious.
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