By John Auckland, TribeFirst.
The festive season might be a time for gift-giving, but it is not generally perceived as a time for investing. No one wants to run an equity crowdfunding campaign over the Christmas holidays, because who’s going to invest when they are weighed down by turkey, plum pudding and mince pies? Psychology also comes into play – everyone wants to close their investment round well before the end of the year.
However, the New Year is a mental construct – it doesn’t reallyexist. And over the holidays investors finally have some all-important time on their hands. So, for entrepreneurs who are willing to put the work in, there is liquidity to be had. I reviewed the data on crowdfunding data programme, TAB, and amazingly it appears that December was the most funded month in the crowdfunding sector in 2017. In total, £123m was pledged across 199 campaigns, versus January, February and May of the same year, each of which experienced just over £40m in pledges.
Let’s look at why it is that December such a good time for receiving!
Investors have more free time
As I mentioned above, investors have more free time in December. Pre-Internet, the investment community would shut down over the summer months and Christmas, but that’s simply not true anymore.
Not everyone wants to spend their bonus on presents and parties! Bonuses are paid at many different times of the year, but Christmas is the most common. Bankers typically get their bonuses in January, so that’s typically considered a more liquid month for traditional investing. However, crowdfunding appeals to retail investors – ‘everyday’ people who are far more likely to get a bonus before they finish work for the year.
Closing off a funding round before the new year
As mentioned earlier in the article, many entrepreneurs want to close their funding round before the end of the year – they hustle harder so they’re not campaigning over the holidays. Given the amount of liquidity there seems to be over the Christmas period, I would take advantage of this and plan activity for the week between Christmas and New Year – a time where lots of investors will be browsing, but not many entrepreneurs will be active online.
Filing tax returns
Many people like to take the time during the holidays to file their tax return before the end of January deadline. Often this is the first time an investor realises how much EIS or SEIS tax relief allowance they have left to use. I know many investors who will invest as much as their income tax relief allows them to!
The ‘holiday effect’
This article in Psychology Todaytalks about how stock markets often experience the “holiday effect”, which causes them to be more optimistic about the state of the market due to their mood. A study by George Marrett and A. C. Worthington concluded that investors are more likely to be in a buying state of mind due to “high spirits” and “holiday euphoria”. They even went as far as to argue that the holiday effect accounts for some 30 to 50 per cent of the total return on the US market in the pre-1987 period.
So, what does this mean for unlisted private companies raising funds through crowdfunding? I would argue their investors are just as likely to experience the holiday effect. In fact, given the highly risky nature of early stage startup investing, I would further argue that the holiday effect is even more pronounced – it might encourage an investor to express greater risk appetite than they would normally do. Great news then for companies that are campaigning during the holidays.
To summarise: The Christmas period isn’t such a bad time to run your crowdfunding campaign after all. However, for entrepreneurs who decide to go for it during the festive season it is important to remember the all-consuming nature of running a campaign. You’ll inevitably be distracted from important time with family and friends. Pre-warn them so you don’t find yourself in the doghouse and still get to enjoy some festive fun.
ABOUT THE AUTHOR
John Auckland is a crowdfunding specialist and founder of TribeFirst, a global equity crowdfunding communications agency that has helped raise in excess of £14m for over 45 companies on platforms such as Crowdcube, Seedrs, and Seedinvest – with a greater than 90% success rate. TribeFirst is the world’s first dedicated marketing communications agency to support equity crowdfunding campaigns. John is also Virgin StartUp’s crowdfunding trainer and consultant, helping them to run branded workshops, webinars and programmes on crowdfunding.