Christmas might be a time for giving, but is it the right time for investing? The view is often that nobody wants to run an equity crowdfunding campaign over the Christmas holidays, because who’s going to invest when they are feeling full of turkey and mince pies and chocolates and…? I also think it’s a psychological thing – everyone wants to close their investment round well before the end of the year.
It is worth remembering that the New Year is a mental construct – it doesn’t reallyexist. 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 from investors?
Investors have more 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.
Bonuses are available
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 when plenty of investors will be browsing, but not many entrepreneurs will be active online.
Using up allowances
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 psychological ‘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% 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, despite common perception Christmas isn’t such a bad time to run your crowdfunding campaign. But in order that you don’t end up in the doghouse I strongly recommend that you let your loved-one know in advance that you’ll be working over the Christmas/New Year period (running a campaign is pretty much all-consuming). That way they will understand what you’re up to and you’ll be allowed to share some of the festivities and fun.