Trends shaping capital markets in 2021

If you’re looking at investing in private companies and expanding your portfolio in 2021, capital raise expert and successful founder of Romer, Emily Heazlewood, has some investment trends to keep in mind. 

No one can refute the COVID-19 outbreak has drastically changed the course of 2020, and its impact will be felt for years to come. However, despite the obvious challenges to Kiwi businesses across almost every sector, it hasn’t been all doom and gloom for those looking for investment opportunities.

Investor activity has been steady over the past year and even exceeded expectations, particularly around the capital markets.    A recent Financial Markets Authority (FMA) report revealed equity crowdfunding providers raised NZD$16.5 million from retail investors in the year to June 2020 – a 20 percent increase from 2019.

So whilst doing your due diligence in this climate is more important than ever, here are three key trends that we’re seeing influence the investment landscape this year and beyond.

The rise of the retail investor

In 2020, the number of people investing saw an explosive amount of growth on a local and global scale. This was in large part due to more people working from home and having more disposable income, undoubtedly caused by the lockdowns and lack of overseas travel with the closure of international borders. In addition, the sudden drop in interest rates and low returns has meant the natural (and sensible) response is to look elsewhere for ways to generate potential returns.

Platforms such as Sharesies, Hatch and InvestNow played a significant role in giving retail investors the opportunity to invest in public companies, which contributed to the market’s peaks and troughs in recent times. 

The GameStop story is one that sticks out – largely because it became such a mainstream controversy. The video game retailer was subject to an extreme amount of trading after retail investors banded together and drove the share price to record highs, at the expense of the hedge funds with short positions on the stock. Their bullish and unpredictable behaviour is one that sets them apart from the usual investor crowd, and is something to keep an eye on as it can be an advantage or risk for both new and seasoned players.

On the other hand, there was no shortage of interest in private companies either. A number of innovative private companies successfully raised capital in 2020, including the likes of Little Island, Karma Drinks and ZOOM Health – all of which added a number of retail investors to their cap tables.

We’ve definitely seen an increase in people turning to our online investment platform as a way to invest their money. Our investor base grew by over 20 percent in 2020 with over 4000 new investors signing up to the platform, with this number expected to grow even further this year. Not only that, we ran 23 successful capital raises in 2020, with approximately 40 percent of investment coming from retail investors.

It was also great to see positive exits from home-grown Kiwi companies like Vend and Sequent early in 2021, which only adds momentum to the rise in people wanting to invest in private companies.

Sectors leading the charge

On a global and local level, the main sectors that saw unrelenting growth were those that largely benefited from COVID-19. Companies who swiftly responded to the pandemic with innovative solutions saw the best results, such as e-commerce, delivery and work from home tools.

Interestingly, global crowdfunding activity was highest in food and beverage followed closely by software and development, and technology. We see this reflected in the capital raises hosted by Snowball Effect in 2020, with 40 percent being in food and beverage and 22 percent in software.

Although we’re still living in a climate of heightened uncertainty and volatility, we’re expecting to see an increase in investors on the lookout for businesses that have clearly outlined growth opportunities, especially those which are local and focused on solving issues such as sustainability, poor healthcare and affordability.

Customer loyalty is key

It’s extremely rewarding to help companies turn their customers into investors. Loyal customers, and especially those who own shares, immediately become brand advocates as they have a vested interest in the brand’s success. According to the FMA report, many investors were typically first-time users of an investment platform, suggesting that these investors had specific interest into a particular company raising capital. 

A large proportion of companies we work with greatly benefit from this brand loyalty, especially those with tangible products – the food and beverage sector being an obvious one.  We saw a number of companies outperforming domestic forecasts despite being hit hard by the pandemic, which comes down to those companies having loyal customers, which in turn attracts investors who were keen to support them.

A prime example of a company that focuses on building long-term customer relationships and loyalty is award-winning craft brewery, Behemoth Brewing Company. Its quirky branding and innovative beer selection have resulted in a highly devoted customer base, who clearly wanted to own a piece of the pie. During Behemoth’s capital raise in December 2020, the company reached its NZD$1.8 million target within 20 minutes of the public offer opening.

This is a trend that is only going to accelerate, even more so in this climate. People are also more likely to invest and back businesses for more than just the return, if it aligns with their values. 

2020 was an extraordinary year for investors with global themes such as ‘unprecedented’ and ‘disruptive’ being thrown around often. We anticipate that in 2021, we’ll see a shift towards more cautious optimism. Kiwi businesses will need to remain adaptable and innovative in the face of uncertainty. However, armed with the above trends coupled with growing consumer confidence, the COVID-19 vaccine roll-out and low interest rates, this heralds a bright future for the capital markets and those looking to invest in the growing number of private opportunities on offer.

Emily Heazlewood (pictured) is the director of growth and partnerships at online investment marketplace Snowball Effect: www.snowballeffect.co.nz