Equity And Debt Crowdfunding Compared - The Case For A Balanced Portfolio


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Our crowdfunding cousins and friends on the equity side of the fence at Angels Den have launched a new fund of hand-picked (but by definition high-risk) investment companies. We believe that a sensible investor could and probably should find room for different asset classes in a balanced portfolio. So an offering from a high-quality company such as Angels Den is definitely worth considering. We say that because a) it's true and b) as a different asset class, we don't see equity as a competitor to our debt offerings.

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So, to delve into some detail: Broadly speaking, peer-to-peer (P2P) business loans of the kind we facilitate here at Money&Co. are relatively low-risk (there are no bad debts in the nearly £10 million of loans we have so far facilitated). P2P loans, carefully vetted as ours are, are not as safe as low-yielding bank deposits, which are protected by the Financial Services Compensation scheme up to £75,000. P2P loans are made to mature, profitable companies. Whereas start-ups, the kind of businesses that qualify for Seed Enterprise Investment Scheme (SEIS) tax breaks, are much younger and riskier. Nevertheless, the tax breaks are attractive, and these assets could sit well with some boring P2P loans yielding 7.6 per cent (that's our lenders' average return here at Money&Co., net of our one per cent charge).

Here's what our CEO, Nicola Horlick, said about the two asset classes a little while ago on the Money&Co. site, and in CityA.M.:

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It's worth reminding readers of the difference between equity and debt crowdfunding – the loans that are offered on this site for example. Here, Money&Co. CEO, Nicola Horlick, explains the pluses and minuses in a recent column in CityA.M.

"The risks to individuals investing in startups are considerable. Fifty per cent of UK startups fail and the FCA has warned that individuals investing in them through an equity crowdfunding site have a high probability of losing all of their money. This is not true of debt sites like mine. Companies that borrow money via Money&Co. must have a minimum of three years' filed accounts and must have been profitable in their last year of operation.

We take a first-ranking debenture over all of the assets of the company and any pre-existing secured debt must be discharged. We will allow a company to have a facility from an invoice discounter, however, as this is helpful to its cash flow. None of the companies that have borrowed via Money&Co. so far have missed a monthly repayment. It is inevitable that there will be some bad debts eventually, but we estimate that this will not exceed 1 per cent of monies lent."

As we report above, two years on from Nicola's statement, there are still no bad debts amongst our offerings.

As for equity, the Financial Times has reported that one in five start-ups in equity crowdfunding fails. Angels Den is one of the very best in the equity crowdfunding sector, and has a much better track record than that. See this from a recent release regarding the new fund:

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"Why is Angels Den SEIS Fund so different from any other investment fund out there?

  1. The fund will do what Angels Den does best and has been doing for the past 10 years: only investing in companies that our expert team have scrutinized. Our track record is a living proof: over 90% of companies that Angels Den helped receive funding in the last 3 years are still trading.

For an exposition of the many other benefits claimed for this fund, click here. Equity can offer great capital returns (by definition not available with a P2P loan) and if you have an appetite for risk, Angels Den is amongst the very best equity crowdfunders.

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Money&Co.'s latest loan offering is A-rated, with a current gross yield of over 8 per cent.It is over 38 per cent funded at the time of writing. The average return achieved by Money&Co. lenders is just over 8.6 per cent - before deduction of our one per cent fee - in the three years and nearly £10 million of loans facilitated on our platform. More new offerings will be announced shortly.

In addition to new loan offerings, our secondary loan market, offering existing loans for sale by lenders, is available to registered Money&Co. users. All loans can be held, tax-free, in an Innovative Finance Individual Savings Account, or Innovative Finance ISA.

Risk

If you haven't made a loan via Money&Co. before, please read the risk warnings and the FAQ section. You may also wish to consult a financial adviser before making an investment. Capital is at risk, once loaned.



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Disclaimer: Money&Co.™ is the trading name of Denmark Square Limited, Company Number 08561817, registered in England & Wales, authorised and regulated by the Financial Conduct Authority (FCA). The company is identified on the Financial Services Register under Reference Number 727325. The registered office is 58 Glentham Road, Barnes, London, SW13 9JJ where the register of Directors may be inspected. Denmark Square Limited (ISA manager reference number Z1932) manages the Money&Co. Innovative Finance ISA.