Envestors: How the sharing economy is set to benefit the world of early-stage investment and why 2020 heralds a new dawn of deal distribution

Author

Envestors

20 November 2019

Sharing isn’t a new way of life – the renting or lending of assets is a concept that’s been around for centuries, but it’s no exaggeration to say the modern sharing economy model, enabled by digital, is rapidly transforming traditional industries. A recent report, published by the Warwick Business School, states that 78% of the British population has taken advantage of the sharing economy in some way. Beyond the obvious examples of transport, selling unwanted goods and hospitality (with Uber, eBay and Airbnb leading the field), this sector has grown into an industry predicted to be worth $935bn by 2025 and has penetrated all areas including fashion, healthcare, consumer goods and property. While these are still early days in the sharing economy and it is still forming, the potential it holds is second to none. As technology takes huge strides forward cutting processing time, expanding capacity and a wider interconnected network, it’s only logical for the investment world to follow these sectors and take advantage of these new opportunities.

How the sharing economy will benefit the world of investment

The investment world – traditionally a disparate landscape, with regional groups or clubs of investors and companies needing to seek finance through brokers – is becoming increasingly connected with the introduction of sector and geography agnostic digital platforms. This is the same technology that launched the modern sharing model and all trends indicate that for investor networks and groups, opening up their metaphorical ‘doors’ – sharing and distributing deals and information – will soon become the norm within the investment sector. The benefits are myriad: investors will get access to more opportunities, scale-ups will have a greater chance of raising funds through increased exposure and networks will have the ability to share deals and information. Fundamentally, the beauty of this is that it benefits every single player in the market.

1 Scale-ups: A greater chance of success

The UK’s infrastructure of world-class universities, incubators and accelerators has fuelled the unprecedented growth of start-ups in recent years; though the entrepreneurial spirit is a great asset to any economy, this has produced a vast – and occasionally overwhelming – array of opportunities, resulting in a highly competitive space for businesses seeking funding. Couple this with the challenge of disconnected and closed investment networks and you have a difficult task if you’re wanting to access as many potential investors as you can. Increased deal distribution enabled by sharing at the touch of a button – with filters to prevent irrelevant or repetitive opportunities – means that for the entrepreneur, the pool will become far bigger, thus raising their chances of reaching their funding targets. Despite digital technology simplifying the process, the investment world is still fundamentally about people – matching businesses with investors is all about relationships, after all. So, by sharing the best – and most appropriate – deals with potential investors, networks are not only subscribing to a more authentic, modern way of doing business, they are also increasing the chances of their scale-ups reaching their targets. More eyes on the prize means a greater chance of success.

2 Investors: Increased deal flow and more diverse portfolios

The increase in investment opportunities created by this new digital landscape has conversely lead to a rise in niche networks, for example those whose focus is specifically on a certain sector, such as  cleantech or businesses founded by women. This is not necessarily a bad thing, though it has led to a fragmentation of the market and if investors are to have a diverse portfolio – the golden rule when seeking a return on their investment – they must either join multiple networks or risk missing out. This takes time and a great deal of legwork; when deals are shared, however, this issue is solved. Investors can subscribe to a single network which means they’ll only see deals that are appropriate for this group.  An example could be – as above – a cleantech company with a female founder; if the original network is focused on cleantech but they know of another group that invests in businesses with a woman at the helm, this can then be shared. This ultimately makes it easier for them to build diverse portfolios and with all deals coming through a single platform, managing that portfolio will also become far less arduous.

3 Networks: Diversifying their members’ portfolios

Digital technology will make deal sharing easy for investment networks, whilst also protecting their most valuable asset – their investors.  At the click of a button, they will be able to showcase opportunities to other networks, quite literally creating a ‘network of networks’, regardless of sector or geography. It’s worth remembering that foreign investment is an important factor to consider – particularly in our current time of political and economic uncertainty; in 2018 alone, British businesses received £6bn in direct funding from overseas and the UK remains the most attractive destination for foreign investors, so the benefits of sharing deals with networks in different territories are obvious. Fundamentally, networks remain in control of their data, increase quality dealflow for their members and give their members the option to diversify their portfolios – all in a simple, seamless process.

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