What does changing consumer behaviour mean for early-stage investing?
Chantelle Arneaud from Envestors shared her thoughts on what the future holds for early-stage investing in the face of changing consumer behaviour.
Since 2007 there has been a steady year-on-year increase in online retail. With a sharp rise in 2019, it now accounts for just under 30% of total UK retail sales.
Undeniably, this recent increase was influenced by Covid-19. Yet, regardless of the catalyst, this trend is an irreversible one.
In the past twelve months, we’ve seen the demise of high-street retailers that were once part of the cultural fabric in the UK. Debenhams had over two hundred years of history, while the younger Top Shop, oft described as the jewel of the high street, both fell into administration.
Evidenced by the calls to save the high street, it is well recognised that the way we shop has forever changed. We’re shopping online while in bed, at work and for 20% of us– from the bathroom.
But, what does that mean for early-stage investing?
It’s easy to write this off as consumer behaviour that has nothing to do with investing. But that would be a mistake.
The proliferation of online shopping is widespread, it’s not just limited about clothes and groceries. It has become a key part of the buying process for all types of buyers for all types of products. Whether you’re buying an enterprise-grade software solution, a new house, a pair of jeans or equity in a business, the online channel is a crucial part of the journey.
Purchasing decisions all start online
Whether you’re a B2B buyer or a consumer, the buying process begins with online research. A Google study confirmed that 92% of people begin their buying journey online. That leaves only 8% wholly reliant on other means to investigate purchasing decisions.
Do angel investors fall into the 8%?
A common belief in the early-stage investing space is that High Net Worths (HNW) don’t like to do things online. However, this is proven not to be the case. A PWC study found that 98% use the internet daily and for up to three hours. Beyond this, a second study by Accenture Consulting confirmed 83% use digital for financial services. It’s worth pointing out that both of these studies are several years old, and it is reasonable to assume that the use rates of digital have increased since the time of publication.
So, if you’re a network promoting investment opportunities and you’re not using the online channel, you are absolutely missing out on a key phase of the investors’ journey.
Customer loyalty can’t be relied on
Networks which don’t offer the convenience of an online channel to their investors may believe that it doesn’t matter; your investors have been with you for years and are loyal.
Another look at retail proves that there is no such thing as customer loyalty.
The loyal customer base that Debenhams and Top Shop built up, slowly trickled away as new digital-first players came in and offered a better, more tailored experience.
It’s easy to blame the pandemic. But the truth is that Covid-19 was but the last nail in the coffin for these iconic retailers. Both were struggling before Jan 2020. The reason: they weren’t giving their customers what they wanted.
Generations grew up, times changed, new savvier players like Asos, came into the market – and their once-loyal customers left.
Customers are only loyal for as long as it suits them. If something better comes along, they will move on.
What we’re seeing in the early-stage investment market is a number of new digital-first investment clubs like the Envestors Private Investment Club, Angels Den, or Chorus. These next-generation investment networks are the Asos of the investment space. They understand that investors want always-on, self-service access to deals and they are ready to deliver.
Successful relationships are built on shared interests, experiences and data
Since 2003, when Amazon began its category expansion, all other retailers have struggled to keep up with them. There are myriad reasons for this, but a core one is their mastery of data. A digital-first company, Amazon knows more about its customers than they’d probably be comfortable with.
They collect data from every interaction, and use it alongside trend data from other customers, in order to help users make buying decisions. They are so good at it they often identify you need something before you’ve even realised.
Can angel networks say the same thing?
Do you really know what your investors are interested in without taking advantage of all the options digital has to offer?
Investment networks are reliant on face-to-face interaction and personal relationships. Now, relationships are crucial to early-stage investing. But data can be used to empower your existing relationships.
With online platforms, you can collect data on investor interests – both those they state explicitly and those you can infer based on their online behaviour. This data, at both the individual and macro level, can be invaluable to you in catering to their needs.
Take the case of an investor who has told you they are interested in B2B SaaS, but through data analysis, you see they’ve begun browsing deals in the cleantech space.
Perhaps they’ve decided they want to add some companies in this industry to their portfolio, or perhaps the interest is latent and they themselves are unaware of it. You might decide to introduce them to other investors experienced in the space or even hold a forum to discuss trends or specific deals. This little insight can very easily be used to deepen engagement among your audience.
Another application is in deal selection. With data on which deals are getting the most engagement, you can start to look for similar deals to bring to your investors.
The early-stage investment space will change
The early-stage investment space is a traditional one – for now. But as we saw in the retail example, traditions can be supplanted as quickly as a Prime delivery.
Many factors drive an industry to change. In the case of early-stage investing it will be the core players in the market. That is the investors and the companies raising finance. They are getting more and more used to a digital-first experience and the investment clubs that serve them need to stay one step ahead of their needs. When this doesn’t happen, heritage organisations fall, and new giants emerge.
Needs have undoubtedly changed. We are at a point where people expect an always-on, personalised service. They like to be empowered to do their own research and to drive their own agenda and without a digital offering they have to wait. Today, no one expects to wait.
To avoid falling behind new entrants traditional networks need to take stock and make necessary change.