Christmas might be a time for giving, but it is not commonly thought of as a time for investing. The thinking goes that nobody wants to run an equity crowdfunding campaign over the Christmas holidays, because who’s going to invest when they are full of a turkey dinner, mince pies and more? I also think it’s a psychological thing – everyone wants to close their investment round well before the end of the year.
But let’s be clear, the New Year is a mental construct – it doesn’t really exist. And importantly during the holiday season investors finally have some time on their hands. So, for the entrepreneur that’s willing to work for it, 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.
So, why is December such a good time for receiving?
1. Investors with 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.
2. Bonuses to be spent
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.
3. Closing off a funding round in the calendar 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.
4. EIS/SEIS allowances not fully used
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!
5. The psychology of the ‘holiday effect’
This article in Psychology Today talks 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.
So, the evidence seems to be that Christmas isn’t such a bad time to run your crowdfunding campaign. What you do need to bear in mind if you decide to go for it, is that running a campaign is very demanding. This means you’ll need to negotiate with your family in advance so they understand what you’re up to. With luck that will keep them happy and onboard and you’ll find your funds rolling in.
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. @Tribe1st