Research from online investment platform SyndicateRoom has revealed that investors in early-stage equities have enjoyed a seventh consecutive year of 30 per cent growth.
A long-term study – conducted in partnership with research firm Beauhurst – is the second piece of in-depth analysis of the financial performance of early-stage investment into 519 UK start-up businesses between 2011 and 2017.
According to the report, of the 519 companies in the cohort, 14 per cent had gone onto exit (a trade sale or stock market listing) successfully generating combined returns of GBP3,785,896,091. These successful businesses outperformed their peer-group by increasing in value at 42.6 per cent per year up to the point of exit.
The study also found that businesses that exited via an IPO (initial public offering) grew faster than businesses that exited via an acquisition. Companies that went to list on NASDAQ grew in value at a staggering 98 per cent per year. One of the fastest-growing companies in the cohort, Adaptimmune, grew in value at 107 per cent per year and went to list on NASDAQ with a valuation of over GBP1.2billion.
Early-stage investing does carry risk – 14 per cent of the companies (73 in total) in the cohort failed, resulting in a total loss of value for investors. The majority of the companies that are no longer in business – 31 – failed in 2017.
If you invested GBP10,000 into the cohort in 2011, your investment would now be worth GBP63,848. You would have lost GBP341 of your capital after EIS tax relief or GBP1,367 without EIS tax relief. However, returns from the investment would have totalled GBP24,086, yielding an ROI of 237.45 per cent and you’d still have GBP38,394 at work (and appreciating at 30 per cent a year).
The UK continues to be heralded as the world’s fintech capital. Financial services enjoyed the highest rate of growth (63 per cent CAGR), more than double the CAGR of the cohort as a whole. TransferWise’s 183 per cent CAGR topped not only the table of financial services businesses but the entire cohort.
At 6.32 per cent CAGR, education was by far amongst the worst-performing sectors within the cohort. Given the value society holds for personal development this may come as a shock. However, for anyone familiar with the education sector, it is only a harsh truth. Value and profit, it turns out, are not the same thing.
“This cohort was worth just shy of GBP1.6billion in 2011, grew to GBP8billion in 2016 and now, just one year later, I’m delighted it is valued at over GBP10billion,” says Gonçalo de Vasconcelos, CEO and Co-founder of SyndicateRoom. “What’s more, the cohort has returned over GBP3.7billion to shareholders, demonstrating the long-term profitability of early-stage investing. And with the government-endorsed and incredibly generous tax reliefs that come with the Enterprise Investment Scheme, there has never been a better time to back trailblazing British start-ups.”
“We were delighted to partner with SyndicateRoom on what is the most comprehensive and compelling data set surrounding early-stage investing,” says Swen Lorenz, CEO of Master Investor. “What this proves is that despite the inherent risks of investing in individual start-ups, when taken as a diversified portfolio, early-stage investing can be robust and very profitable. In light of dwindling returns in other asset classes, I strongly urge private investors to take notice of early-stage equities.”
