New ECF research is flawed

Posted on Posted in ECF

New research published by Beauhurst shows failure rates for businesses funded via equity crowdfunding are much higher than normal start up and SME failure rates.

The analysis is deeply flawed but not for that reason.

We have been saying forever that most of the businesses funded via ECF have been ones that would not survive and so it has proved. This is the fault of the platforms who have dressed up these old ewes as minted lamb to display in their shop windows. Investors have been taken for a ride and its leaving a bad taste in the mouth.

One conclusion that Beauhurst comes to in their analysis, is that the failure rate for 2012 and 2013 is high but drops off to a level much more in line with the norm in 2014 and 2015. See below

Their conclusion is that this is all part of the ECF learning curve ie platforms are promoting better businesses. This is very clearly nonsense from our research. ECf only started in 2011 and really only got going in any volumes after 2013. So what we are seeing here is a simple result of the time lag. It takes months and normally a year or more for a failed company to be struck off. So the drop off is only a result of the failures not appearing out of the system yet. Sure ECf is on a learning curve and it has to be hoped that it learns a lot before its too late. But please do not let’s make things up to hide the truth.