You must kiss a lot of frogs before you find a prince if you are investing in digital businesses.
Crowdfunding platform Seedrs has recently released figures that show that just over one in four equity funded deals make any money.
Deals with a digital mix also take an 85% slice of the Seedrs investment pie, which leaves a lot of frogs – the non-movers or losers in the crowdfunding world.
So how do you pick a prince?
The trick seems to back an aggregator or infrastructure company rather than one that delivers goods or services crafted in-house.
What do internet giants have in common?
The tip is anecdotal but look at this for a hint:
- Uber is the world’s biggest taxi firm but has no vehicles
- Facebook and Google are the world’s largest repositories of online content but produce none
- Alibaba is rated as the world’s most valuable retailer but carries no stock
- AirBnB provides more beds a year than any other accommodation provider but owns or leases no property
- YouTube streams other people’s video content without producing any movie clips
- Wikipedia relies on content provided free by users to fill pages
- Ebay is a market place for other people’s stuff and sells nothing
Between them, these internet giants turnover billions but all have the fact that they facilitate rather than get their hands dirty dealing directly with customers.
You must scroll down to almost the 50s in the Alexa list of most popular web sites before coming across companies that make and sell their own stuff.
Digital businesses that produce the goods
Microsoft (44), Apple (46) and Netflix (50) are the biggest names to have reached this heady height.
The next producers are news provider CNN (69) and Adobe (71), the video, photography and graphic design software giant.
The New York Times (95) and BBC (96) sneak in to the top 100 as the top content providers.
All the rest survive by peddling goods or services as social networks or online market places.
Success is not only measured by cracking the world’s top 100 web sites, but a digital business needs to stand out while returning a yield for investors who showed faith on the ground floor.
“People and institutions who invest through Seedrs do so in the expectation of financial returns. When we set out to build Seedrs, our goal was to give profit-seeking investors access to an asset class that was once difficult or impossible for them to reach,” says the crowdfunding platform.