Nearly 10 percent (9.8 percent) of companies that raised through equity crowdfunding between 2014 and 2019 have “exited,” that is, gone public or gone through M&A. Moreover, three years after the successful closing of the campaign, 13 percent are reported to be growing in terms of revenues and margins.
This is the main figure emerging from the Report on Equity Crowdfunding Performance in Italy produced by Italian Tech Alliance-the Italian association of venture capital, innovation investors, and innovative startups and SMEs-and BizPlace, a financial advisory boutique specializing in services for innovative companies.
The first study on the performance of companies that have raised with equity crowdfunding
The report examines the Equity Crowdfunding market in Italy, its main players, and the more than 700 issuers that have carried out a funding campaign from 2014 to date.
This is an extremely interesting study for the sector, as for the first time, it analyzes and compares the economic-financial performance of issuers three years after funding, based on the platform that selected them, their target sector, and their stage of life.
The analysis, moreover, also highlights another phenomenon, in this case, a negative one: the poor forecasting ability of issuers, due to a mix of factors.
According to the study’s drafters, these include the tendency of issuers to exaggerate projections in order to make themselves more attractive to investors and the established habit of setting funding targets not so much in relation to the actual liquidity needs resulting from the companies’ plan, but rather to the market’s ability to easily meet those targets.
Read more about the equity crowdfunding sector in Italy and find the most important financial news of the day with teh born2Invest mobile app.
The main evidence
Returning to the data, the report analyzes the expected performance (revenues and Ebitda forecast in the business plan), the “actual” data (revenues and Ebitda actually pursued), and finally, the comparison between expected performance and actual data. Each of these analyses is broken down by sector, by life stage (pre-seed, seed. Series A), and by platform (the 7 platforms that collectively raised the most between 2014 and 2022 are considered).
As reported in the opening, despite the fact that growth forecasts almost always turn out to be overestimated, in 23 percent of the cases the companies that raised through ECFs are nonetheless found to be growing and, in 9.8 percent of the cases, listed on the stock exchange or acquired by more relevant national and international groups.
In this regard, the study’s drafters note, “considering the tax benefits associated with this type of investment, it would be sufficient for this 23 percent of companies to generate an average 3x return on invested capital to have a positive overall balance sheet for investors and thus for the market in general.”
Going into more detail, it emerges that a 13% of issuers have grown in terms of revenues and of these, a 64% (Top Performer) have grown with growth rates of more than 20% per year and have reached profitability in the 3 years after raising; the remaining 36% are growing in terms of revenues albeit at lower rates and with still negative margins (Stable Growth).
Conversely, 9% of the total issuers are found to have put the company into liquidation between 2014 and 2019 (Out of business) and 15% are found to have decreasing revenues and negative EBITDA (Risk of failure). The majority of issuers (54 percent) observe a gradual decrease in revenues while maintaining positive margins (Poor Performer).
The authors of the report
Italian Tech Alliance – formerly VC Hub Italia – is the Italian association of venture capital, innovation investors, and Italian innovative startups and SMEs. It was founded in 2019 by the managers of the leading venture capital funds active in Italy and today has more than 60 investor members, more than 140 of Italy’s leading startups and innovative companies, and 26 supporting members.
BizPlace is a boutique financial advisory firm, a point of reference in Italy for innovation practitioners. From 2017 to date it has supported over 400 clients in more than 20 different technology verticals for Due Diligence, M&A, and financing transactions through equity and debt channels.
DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.
This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.
First published in Crowdfunding buzz a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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