Investing at growth stage and the importance of portfolio diversification

  • Wednesday 15th November 2017

When Crowdcube started almost seven years ago, one of the driving forces behind building the business was to address the inequality that existed in the equity asset class, which was the preserve of only wealthy and well-connected investors. We wanted to make it simple for retail investors to access this asset class by creating a diversified portfolio of investments, regardless of how much money you had to invest.

The advice you will get from most active equity investors and angels is that your equity portfolio should be diversified to spread risk and maximise your chance of returns. Many early stage businesses will fail but you can help mitigate risk through diversification. 

As an Investor you can choose to diversify by sector and stage of growth. Historically we have been very good at presenting investors with the opportunity to participate in fundings across different sectors. 

It is only fairly recently that we have moved into much later stage funding rounds for business looking for growth capital. Growth Capital is an equity investment in relatively mature companies that are looking for capital to expand or restructure operations, enter new markets or finance a significant acquisition without a change of control of the business.

Why is this move important? 

This has allowed our investors whose portfolios have been traditionally concentrated around companies that have been trading for 1-5 years to back 'growth' stage businesses for the first time.

By accessing investment opportunities in this growth stage you are supporting a business that should be closer to offering a liquidity event for investors, enabling you to sell your shares in the business or alternatively, some later stage (profitable) businesses may begin paying dividends. However, it is noteworthy that the multiple return could be less than backing a higher risk startup that goes on to great things.

Parcel2Go

Parcel2Go is a good example of a business at growth stage currently raising on Crowdcube.

  • Over 10 years, Parcel2Go has grown sales from £5m in 2007 to £56m in 2017 in its core trading company (Parcel2Go.com Ltd)
  • Underlying profit was £1.85m in the year ending March 2017. In the first six months of the current financial year sales are up 25% year-on-year
  • The company has 800,000 paying customers
  • As well as a B2C model, it has a B2B enterprise software model with Blue Chip carriers including UPS, TNT, Yodel, Hermes & DPD
  • The business has a seasoned management team. James Greenbury has a strong track record of success in businesses at mid-stage development and delivering successful exits. He was previously CEO of DX Group and CEO of Secure Mail Services.

You can view the Parcel2Go pitch here.

We hope to bring you more growth stage investment opportunities over the coming months to help you to continue to diversify your portfolio and maximise your chances of positive returns.

Investments of this nature carry risks to your capital. Please Invest Aware.