Yesterday brought some surprising news. Seedrs and Crowdcube are combining.  You can read more about the merger here – I use both platforms as an investor and have had experience of raising money in the latter.

Why my surprise? In truth I had expected the two platforms to try and continue on their separate paths, differentiating their propositions with Crowdcube focusing perhaps a bit more on consumer related stuff – especially F&B – while Seedrs ploughs on with its focus on specialist stuff like fintech. In reality though both platforms were competing for the same money and news that Crowdcube were going to copy Seedrs and launch a secondary market was I suppose a clue that convergence was more likely.

Stepping back from the detail of the merger, one is forced to conclude that this is probably a tacit acceptance that crowdfunding equity hasn’t quite worked out the way we expected – as is also the case in peer to peer lending. The great democratisation has stumbled and although both platforms seem to have carved out sound business propositions, one was always left wondering where the next big growth kick was going to come from?

The success of the Merian Chrysalis listed fund shows there is institutional interest in later stage VC investments and its true that both platforms have begun to feature more prominently later stage private growth businesses raising cash ( at frequently ludicrous valuations). But my guess is that institutional interest or for that matter private wealth adviser interest in either platforms is not far above zero.

There have also been a range of criticisms levelled at both platforms and one can reasonably question some of the execution – for my part I thought the initial backing for mini bonds for example a few years back was a grievous mistake. But both platforms seem to have learnt from their mistakes and governance has improved, although there will always be a lorry load of failed businesses littering the crowdfunding landscape. We’ve had both platforms boast an improved track record on valuation uplifts and a few realisations and Crowdcube in particular has, I think, done a great job of encouraging amateur investors to buy into consumer brands they want to engage with and support grow. Last but by no means least, in terms of customer experience both have improved leaps and bounds and I can honestly say that using both is incredibly easy and transparency has radically improved.

But if we are honest the growth has not been spectacular. We can advance any number of excuses – some of which I have aired above – but I think there is a brutal reality kicking around. At the portfolio level, UK private investors have not embraced early stage private equity.

Let me explain. If we take an average wealthier private investor, it’s not unreasonable to presume that they might allocate say 2 to 5% towards riskier earlier stage private businesses. They might do that through a number of channels including listed private equity funds and crowdfunding. Of that 2 to 5%, its not unreasonable to think that say 0.5% to 2% might go on the riskiest class of all – early stage venture capital. For a private investor with a pot of say £250k to £500k that would represent between £1k and £10k in a speculative pot which might find its way into crowdfunding. Its certainly how I invest in this space, with similar sums. But my impression is that almost no mainstream slightly cautious wealthier investors that I encounter have that kind of exposure – or indeed any – to crowdfunding. If they are a successful entrepreneur by contrast, they may have some selective exposure and conversely I have no doubt that more than a few millennials who dabble at retail investing via a platform such as Freetrade also have some crowdfunding exposure. But beyond that, your average equity investor, I would guess, has zero exposure. If I was to do a Venn diagram, I would place active customers of AJ Bell, HL and Interactive at one end of said diagram and crowdfunding at another diametrically opposite end. Put it another way, my guess is that almost no AIM investors have crowdfunding exposure. More’s the pity! I don’t celebrate this, but I simply state it as conjecture based on myriad conversations.  Again, a long list of reasons suggest themselves but I would argue that greed is central. If you are barstool investor you can point to shares in Tesla doubling in a few months whereas crowdfunding has relatively few Eureka moments where massive profits are crystallised. Of the few that have done well, I have heard next to nothing about the bumper profits made by the crowdfunders themselves. And if you can’t appeal to greed, investment innovation starts to stumble.