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GEARING UP FOR THE LEAD INVESTOR

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Luke Davis

Luke Davis – CEO of IW Capital, Co-Founder & Chairman of Crowdfinders and Co-Founder of Money&Co.

Luke Davis

Luke Davis

You can’t ignore equity crowdfunding. The industry’s growth over the past five years has been phenomenal, successfully granting the armchair investor access to a domain that was traditionally reserved for the institutions. In doing so, the industry has paved the way for some of the most successful business case studies of the past decade. In the past five years we’ve witnessed the rise of some of the most fantastic platforms to exist globally and facilitated much-needed capital for the UK’s rising SME population. Without these platforms the new generation of social investors may not be inexistence today. However, as with the rise of any industry, more players have now entered the market with a similar formula, in a bid to emulate the success of the early adopters. So where else can the industry go from here and are we in danger of exhausting the crowd?

Nesta’s ‘Pushing Boundaries: the 2015 UK Alternative Finance Industry Report’ was an indication of the incredible rise of alternative finance and its contribution towards the democratisation of SME investment. The industry grew by £3.2 billion in 2015, with equity-based crowdfunding cited as one of the fastest growing models on the market, expanding by 295% since 2014. As these figures suggest, more funding is being generated for UK businesses on an annual basis.However, what we can also take from this is that the market is getting busier as platforms are assuming a greater number of companies – last year alone, 254,721 businesses and individuals turned to the crowd for support.

As with any saturated market challenges start to emerge, and for the crowdfunding industry,it is the risk of inflated valuations. As more companies turn tocrowdfunding this is something that we should be mindful of as an industry. To counteract this and safeguard the market in the long-term, we have to implement preemptive measures. This will involve far greater levels of due diligence to ensure that these valuations do not prove detrimental for investors in the long run and dilute returns post-exit. Moreover, should these returns prove lack lustre, it is of paramount importance that we avoid the risk of investors becoming reticent in the future.

Beyond valuations, the higher volume of companies that have turned to crowdfunding and succeeded has created additional challenges that need to be addressed. As crowdfunding has evolved and generated a legacy of exceptional start-up case studies that have continued to develop and grow their brand, these businesses are now outgrowing the crowd. Moreover, the platforms that initially supported these growing companies are not geared to receive the scale of finance that is required to push them from promising start-up to thriving SME. However, many of these companies are still too small to receive full backing from the institutions, so reside in a state of financial limbo as a result.

At the investment end of the SME landscape, the profile of the crowd has changed considerably from what we knew five years ago. Now, investors have typically built up a portfolio of around 8-10 companies, with many of themawaiting returns from the investments made in the early stages of the crowdfunding era.

UK crowdfunding has created exceptional case studies,demonstrated a remarkable growth trajectory and set a benchmark for the global alternative finance industry. That said, as with any industry of such momentum, we must be prepared for challenges ahead to deflect from the risk of an inhibited crowd and stages of SME growth that we as a sector will struggle to support financially. For me, the lead investor model could be the answerand this is an area largely championed by debt crowdfunding platforms.

Although some equity-based platforms are embracing the lead investor, it’s more common amongst debt providers. The lead investor model simply taps into humans’ herd mentality. If a sophisticated investor withmore experienced funding capabilities is willing to invest in a companythat hasa fair and accurate valuation, this creates a stamp of approval, instilling a ripple effect of confidence amongst the crowd. This sophisticated investor – whether a high-net-worth individual, a hedge fund or a family office – could therefore help catalyse the industry into movement. In no way should we institutionalise an industry built on the values ofdemocratic investment.However, as a means of stimulating the crowd and evolving a burgeoning start-up population into a community of mid-sized enterprises, theindustry’s infrastructureneeds to recalibrate andgear up fora higher level of investment.

To do this, platforms need to lay the groundwork for cash from the serious investor, which can only be achieved by generating quality deal flow and not relying on quantity. A renewed focus on deal origination will require platforms to have credit analysis experts on board to fully vet new opportunities without depending on a blackbox algorithm to do the due diligence for them. This way, with some support from a lead investor, we can empower the crowd again and help them to feel confident enough to back the brilliant businesses that Britain has to offer.

For both equity crowdfunding and debt, it all boils down to scalability, for the companies that seek funding and for investors. The platforms need more investors and rejuvenated investor interest to back businesses; the businesses that are in this state of limbo need capital; and the investors themselves need the confidence to support these companies. So in order to ensure that crowdfunding does stay democratised and is able to keep pace with the growth of the businesses it created, institutional injections could be a transitional solution until we as an industry establish the infrastructure to sustain this thriving sector long-term.

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Shares rise as cyclical stocks provide support; yields climb

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Shares rise as cyclical stocks provide support; yields climb 1

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – A gauge of global equity markets snapped a 3-day losing streak to edge higher on Friday, as the recent selling pressure on high-flying big technology-related stocks eased even as investors showed a preference for economically sensitive cyclical sectors.

Oil prices fell from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather, while the U.S. Treasury yields extended their recent rise.

The MSCI’s global stock index was up 0.47% at 681.88, after losing ground for three consecutive sessions.

On Wall Street, stocks steadied as cyclical sectors edged higher while tech names made modest advances after concerns about elevated valuations led to some selling in recent sessions.

“What we saw (this week) represents a market that is tired and may not do very much. So we are headed for some sort of a pullback, but I don’t think we’re there just yet,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

“Investors are not really pulling out of the market, but they are becoming more cautious. It already has factored in another good positive earnings season.”

The Dow Jones Industrial Average rose 119.97 points, or 0.38%, to 31,613.31, the S&P 500 gained 12.93 points, or 0.33%, to 3,926.9 and the Nasdaq Composite added 92.58 points, or 0.67%, to 13,957.93.

The S&P 500 technology and communication services sectors, housing high-value growth stocks, were among the smallest gainers in early trading, while financials, industrials, energy and materials rose more than 1%.

European shares edged higher on Friday as an upbeat earnings report from Hermes boosted confidence in a broader economic recovery. The pan-European STOXX 600 index was 0.64% higher.

U.S. Treasury yields on the longer end of the curve rose to new one-year highs on Friday as improved risk appetite boosted Wall Street, while the yield on 30-year inflation-protected securities (TIPS) turned positive for the first time since June.

Core bond yields have pushed higher globally, led by the so-called reflation trade, where investors wager on a pick-up in growth and inflation. Growing momentum for coronavirus vaccine programs and hopes of massive fiscal spending under U.S. President Joe Biden have spurred reflation trades.

The benchmark 10-year yield was last up 5.1 basis points at 1.338%, its highest level since Feb. 26, 2020.

Oil prices retreated from recent highs for a second day on Friday as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.

Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude oil production and 21 billion cubic feet of natural gas, analysts estimated.

Brent crude futures were down 28 cents, or 0.44%, at $63.65 a barrel, while U.S. West Texas Intermediate (WTI) crude futures fell 66 cents, or 1.09%, to $59.86.

Copper jumped to its highest in more than nine years on Friday and towards a third straight weekly gain as tight supplies and bullish sentiment towards base metals continued after the Chinese New Year.

Spot gold XAU= was down 0.58% at $1,785.71 an ounce.

The dollar lost ground on Friday, extending Thursday’s decline as improved risk appetite sapped demand for the safe-haven currency and drew buyers to riskier, higher-yielding currencies. The dollar index was off 0.295%.

Bitcoin hit yet another record high on Friday, hitting a market capitalization of $1 trillion, blithely shrugging off analyst warnings that it is an “economic side show” and a poor hedge against a fall in stock prices.

(Reporting by Saqib Iqbal Ahmed; Editing by Nick Zieminski)

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Oil falls after surging past $65 on Texas freeze

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Oil falls after surging past $65 on Texas freeze 2

By Stephanie Kelly

NEW YORK (Reuters) – Oil prices fell on Thursday despite a sharp drop in U.S. crude inventories, as market participants took profits following days of buying spurred by a cold snap in the largest U.S. energy-producing state.

Brent crude fell 41 cents, or 0.6%, to settle at $63.93 a barrel. During the session it rose as high as $65.52, its highest since January 2020.

U.S. West Texas Intermediate (WTI) crude futures fell 62 cents, or 1%, to settle at $60.52 a barrel, after earlier reaching $62.26, the highest since January 2020.

Brent had gained for four straight sessions before Thursday, while WTI had risen for three.

“The market probably got a little bit ahead of itself,” said Phil Flynn, a senior analyst at Price Futures Group in Chicago. “But make no mistake, this selloff in oil doesn’t solve the problems. The problems are going to persist.”

Though some Texas households had power restored on Thursday, the state entered its sixth day of a cold freeze. It has grappled with refining outages and oil and gas shut-ins that rippled beyond its border into Mexico.

The weather has shut in about one-fifth of the nation’s refining capacity and closed oil and natural gas production across the state.

“The temporary outage will help to accelerate U.S. oil inventories down towards the five-year average quicker than expected,” SEB chief commodities analyst Bjarne Schieldrop said.

Prices dropped despite a decrease in U.S. oil inventories. Crude stockpiles fell by 7.3 million barrels in the week to Feb. 12, the Energy Information Administration said on Thursday, compared with analysts’ expectations for an decrease of 2.4 million barrels.

Crude exports rose to 3.9 million barrels per day, the highest since March, EIA said.

“The big nugget was the big jump in exports of crude oil,” said John Kilduff, partner at Again Capital in New York. “We’ll have to see what happens with that next week weather in Texas, but I have been looking for a pickup there for a while.”

Oil’s rally in recent months has also been supported by a tightening of global supplies, due largely to production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and allied producers in the OPEC+ grouping, which includes Russia.

OPEC+ sources told Reuters the group’s producers are likely to ease curbs on supply after April given the recovery in prices.

(Additional reporting by Yuka Obayashi in Tokyo; editing by Emelia Sithole-Matarise, Steve Orlofsky, David Gregorio and Jonathan Oatis)

 

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GameStop frenzy sparks fresh investment in stock-trading apps

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GameStop frenzy sparks fresh investment in stock-trading apps 3

By Jane Lanhee Lee

OAKLAND, Calif. (Reuters) – The recent trading frenzy centered on GameStop Corp and other “meme” stocks is sparking a wave of investor interest in start-ups aiming to mimic the success of Robinhood Markets Inc, whose no-fee brokerage app has helped drive a trading boom.

Public.com, a direct competitor to Robinhood that boasts a host of blue-chip backers, said on Wednesday it had raised $220 million, valuing it at $1.2 billion on the private market. Another well-heeled rival, Stash, said earlier this month it had raised $125 million, while Webull Financial LLC, backed by Chinese investors, is also raising fresh funds after enjoying an influx of new users.

Robinhood, meanwhile, raised some $3.4 billion in the midst of the GameStop furor to assure its stability amid rapid growth and demands by its trading partners that it post more collateral.

The fresh investments are coming even as government regulators ramp up scrutiny of Robinhood and others involved in the GameStop trading. A U.S. congressional committee on Thursday grilled the chief executive of Robinhood and a YouTube streamer known as “Roaring Kitty,” among others, as it probes possible improprieties, including market manipulation.

Robinhood came under stiff criticism from some quarters for restricting trading in GameStop and other shares at the height of the frenzy, a move the company says it was forced to make due to requirements of partners that settle trades. It has also drawn scrutiny for a business model that relies on payments for sending trading business to partner brokerages, a practice Public.com and some other rivals are pledging to avoid.

Investors see rich opportunity in bringing easy stock trading to smartphone users globally, though the companies say they are also cognizant of the risks.

Stash, which doubled its active accounts to over 5 million by the end of last year, operates with only four trading windows a day to discourage rapid speculative trading, it said.

U.K.-based Freetrade.io told Reuters by email that its user numbers last year grew six-fold to 300,000 and by mid-February had reached 560,000. It said it had raised a total $35 million, including from crowd-funding rounds from over 10,000 customers.

But it does not offer margin trading or riskier offerings. “These products encourage investors to behave as if they are gambling or speculating rather than investing,” a Freetrade.io spokesman said.

Interest in trading apps is soaring globally. In Mexico, trading app Flink launched seven months ago and already has a million users, according to co-founder and chief executive Sergio Jimenez. He said Mexicans can buy fractions of U.S. stock through the platform, but not Mexican stocks – yet.

“Ninety percent of them are investing for the first time,” said Jimenez.

Flink raised $12 million in a funding round in February led by Accel, an early investor in Facebook. Accel is also an investor in Public.com and Berlin-based Trade Republic Bank Gmbh, which allows European retail investors to buy fractions of U.S. stocks, according to Accel partner Andrew Braccia.

“The bigger story here is there’s just this global trend of… accessibility,” he said.

Start-up investors also see opportunity in the infrastructure behind the trading apps. DriveWealth, which serves Mexico’s Flink and 70-plus other online trading apps around the world, has hundreds more partnerships in the pipeline, according to founder and chief executive Bob Cortright. DriveWealth provides the technology to power digital wallets and trading apps, and also provides clearing and brokerage service to its business partners.

“This is this is only beginning,” said Cortright. “The fact that you could have a smartphone in your hand in India, for instance, and buy $10 worth of Coca-Cola stock at an instant, that’s pretty game-changing.”

Venture capital investments in U.S. fintech companies hit a record last year with $20.6 billion invested, according to data firm PitchBook. Globally, around $41.4 billion was invested in fintech companies in 2020.

(Reporting By Jane Lanhee Lee in Oakland; Editing by Jonathan Weber and Dan Grebler)

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