Crowdcube’s co-founder Luke Lang has voiced his support for the government’s call for a regulatory review on crowdfunding in the UK, saying the platform is committed to working with the Financial Conduct Agency (FCA) to ensure crowdfunding in this country is safe for investors.

In a review by the regulatory body earlier in the month, the organisation concluded: “We have seen the crowdfunding market continue to grow rapidly. We recognise that it is still early but, at present, we see no need to change our regulatory approach to crowdfunding, either to strengthen consumer protections or to relax the requirements that apply to firms.”

Although the FCA came to the conclusion that nor further action was necessary, it did say platforms need to be mindful that they are not promoting offers the general public may not understand or be favourable towards seasoned investors.

Additionally, it voiced concerns that some forum content was being filtered, which could foster an unfair playing field for all investors – whether small-time or VCs.

“As the market leader in the UK, I strongly feel that is vital that the FCA effectively regulates all platforms (particularly newer entrants with less resources and experience of operating in a regulated environment) to ensure all platforms follow the high standards we have adopted. This should help to avoid potential issues occurring in the future,” Lang told Crowdfund Insider.

However, he said other platforms and news outlets weren’t playing ball with the regulatory authority and this is saddening. “It is frustrating and somewhat bewildering that a few people ignored the FCA’s conclusion that there was no need to change their regulatory approach to crowdfunding,” he continues.

He finished by voicing his own opinion, saying the new regulations are currently working well and strike the right balance between encouraging new investors to try out crowdfunding as a form of income and protecting those already involved in alternative financing.

“The new regulations are working well and in my opinion strike the right balance by appropriately protecting investors whilst nurturing much needed new forms of finance for Britain’s start-up, early and growth stage businesses,” he says.

The post Crowdcube’s Luke Lang agrees with FCA’s regulation pledge appeared first on Crowdfund Champion.

The FCA has published a review of the UK crowdfunding industry, covering both rewards-based and equity schemes and platforms.

The news is good for rewards-based platforms, with the UK regulatory body saying it can remain as-is, saying: “We recognise that it is still early but, at present, we see no need to change our regulatory approach to crowdfunding, either to strengthen consumer protections or to relax the requirements that apply to firms.”

However, it did issue warnings regarding equity-based schemes, saying platforms need to make it obvious of the risk of campaigns, especially for those that don’t have professional experience of investing: “This becomes significant if venture capitalists are able to profit from successful investment opportunities but crowdfunding investors find, when an investment succeeds, that equity dilution means they do not share in the profits to the same extent.”

The FT reported that it feels some platforms are misrepresenting the opportunities for investors in order to attract less experienced funders

Additionally, it stated there were concerns when it comes to the forums on equity-based crowdfunding platforms such as Crowdcube and Seedrs stating: “Some market intelligence suggests that negative comments are being deleted from these forums on some sites, which may lead to situations where relevant risks are overlooked.”

However, those platforms that have raised questions have been contacted by the FCA and advised to change their practices to reflect the law, ensuring they are giving a fair representation and are not misleading in any way.

To date, equity crowdfunding has raised £67m of funding for companies, but a pretty high number of companies who raised funds via equity crowdfunding have already collapsed. The FT identifies Bubble & Balm, one of the first companies to raise cash through crowdfunding in the UK, which went bust in July 2013 after raising £75,000 from 82 investors.

Photo credit: LendingMemo.com

The post FCA publishes regulatory review of UK crowdfunding industry appeared first on Crowdfund Champion.

You’ve been looking for a smart investment and you’ve been thinking about putting some of your available capital into a crowdfunding pitch. You’ve explored our directory of crowdfunding services and found a few interesting pitches, but what should you look for when you make an investment?

That’s what we hope to explain a little in this post, but in light of FCA rules (and common sense) we should warn you that: “The materials on this site do not constitute financial or other professional advice. We make no representations as to the accuracy, completeness, suitability or validity of any information and will not be liable for any damages arising from its use.”

What we can do is share a few insights we hope might help you make good investment decisions of your own.

Know the market

You should know the market you’re getting into and once you choose to make an investment using a crowdfunding service you are already in the crowdfunding market.

If you are making an investment you’ll want to place your bets on people who know what they are doing — and that includes them knowing about crowdfunding, if they’re pitching via a service. So what should you look for?

Check the pitch

Video is pervasive, and most crowdfunding services offer people pitching the chance to publish one. Video creation isn’t for everyone, of course, and while there are people around who’ll make a video for your crowdfunding pitch, as an investor you’re probably not looking for production values as much as you seek passion, intelligence, and honesty.

People making pitches really should make videos when they do. Campaigns that do make videos achieve a significantly higher success rate than those who don’t, and they raise up to 122 percent more money, too. If the pitch you are pondering doesn’t offer a video when they are trying to raise money, does it make sense to take a position in them at all?

On the other hand, if there is a video are they doing it right?

There’s plenty of advice websites out there who recommend people making videos for this purpose keep the film short, to the point, say who they are, show themselves and manage to get the point across while still trying to have a little fun. As an investor your first test of potential business acumen starts right there — are your potential investees thinking about the importance of this video to what they are trying to do?

Are they working to create an emotional bond with you inside the first minute?

The same logic should extend across your analysis of the pitch. Find out what the current advice is for people seeking funding through crowdfunding and compare this with what you’re seeing — there’s a very good chance the people you are looking at have read the same advice too. Unless you are seeing something incredibly genuine and charmingly individualized, then you should expect your potential investments to at least try to heed that advice.

Crowdfunding means crowd

Campaigns that gain 30 percent or more of their funding goal in the first week are the most likely to succeed. Knowing this you usually find people making pitches have already mobilized their friends and relatives to help raise them to that point in funding. This means that when you’re thinking on taking investment in a pitch, one thing you can look for is how long the pitch has been available and what percentage of funding it has achieved.

Existing networks are never enough. If they were, people making pitches wouldn’t need to pitch at all. In most cases the project you’re considering will have exhausted its personal connections to get to the funding level it has already achieved. A smart investor will take a look at what the people behind the business are doing to fill the gap. The most usual strategies pitching people make is to be digitally active, so an investor may want to check if the team:

• Is active online?
• Has a website?
• Which services are they active on?
• Can you find guest posts or blogs on other websites written by the protagonists?

Checks like these can help investors determine just how much the people who want your money are doing to find additional investment. It’s not foolproof — some pitches and business ideas are extraordinarily niche, so you can’t really expect exactly the same behaviour, but on a case-by-case basis it makes sense to vet pitch-related digital marketing efforts.

While making these checks you may find further evidence to suggest how active the people behind your potential investment are online. It makes sense for them to be — it’s about reaching the crowd to bring in the finance; so if they aren’t especially active at this stage of their business, how active do you expect them to be with your money once the business goes live?

Traditional checks

You should also you follow the age-old principles of due diligence, for example:

• If your potential investment claims to be a trading company you should certainly check its details on Companies House (or your local equivalent).
• You should then assess any available data regarding the directors of the company.
• You may want to run credit checks against the company and its people.
• Contact your potential investment and ask to see their company information and business plan.

Ask difficult questions:

“Who are your competitors?”, “Where do you want to be in 20-years time?”, “What kind of company are you?”, “How reliant are you on foreign manufacturers and do you have an existing relationship?”, “Where are you with distribution?” You don’t have to run at any of the answers you receive, but you have to be certain the target of your investment has at least some knowledge of what they are doing. It is possible that you may already be able to fill in any gaps in the knowledge/reach of your investment target or its team.

Finally you’ll need to call in the lawyers, agree a suitable contract and (presumably) run a Criminal Records Check.

All these tests of due diligence are traditional, but each one is essential. Merely because the business you are investing in sources its funding online doesn’t mean your money should be less well protected.

Stay hungry, stay foolish

I’ll end these few snippets of advice for potential investors with one warning: The difficulty of judging business ideas by how well their protagonists do their crowdfunding marketing is that in some cases you can miss a great idea simply because such marketing isn’t what they do well. As Apple’s Steve Jobs’ once said, “Stay hungry, stay foolish,” and keep your eyes open for that maverick pitch that could become worth it’s weight in gold.

Also read: The ABC of crowdfunding

The post What to look for in a crowdfunding pitch appeared first on Crowdfund Champion.

UK regulators are taking a heavy-handed and seemingly inappropriate response to the promotion of crowdfunding pitches — they’re preventing them, citing the Financial Services and Markets Act (FSMA) when they do.

Talking about equity pitches? You’re nicked!

What’s happening, according to RealBusiness, is that the Financial Conduct Authority (FCA) has decided that allowing websites and social media channels to discuss crowdfunding pitches for equity offerings constitutes financial promotion under Section 21 of the FSMA. This means anyone doing so faces up to two years in jail “unless they are regulated by the FCA”.

This isn’t an idle threat — the FCA has recently been sending letters threatening action against crowdfunders who commit such actions as:

• Mentioning a pitch on the Web
• Mentioning a pitch on Facebook
• Mentioning a pitch on Twitter
• Or even retweeting someone else’s Tweet.

Chilling effect

The rationale behind this ridiculous legislation was to prevent unregulated promotion of financial products to the public, but this reading of the law is likely to cast a chilling shadow across equity crowdfunding sites, and sites reporting on available projects for investment.

That’s incredibly bad for business users attempting to exploit crowdfunding to get their ideas off the ground. It is particularly bad given the essential part social media and websites play when sourcing funding.

The only people likely to benefit will be the big banks and well-heeled investors, who get to maintain their historic grip on business funding. This grip enables them to cherry-pick the most profitable ideas while sending other valuable business propositions to the wall.

In an environment in which banks and investors are pulling the plug on new business funding, this could threaten future economic recovery by limiting the available money supply for new business.

TheCrowdfundingCentre.com has already received this warning from the FCA, RealBusiness reports. That site cannot now display complete listings of equity and loan offerings it carries, “Due to current FCA rules”.

Take action

There is a little hope. Chris Moss of Channel 4’s Bank of Dave has written some easy amendments to the FSMA that would update the law so the Web and social media would be treated in the same way as any other form of media. That’s because conventional media channels are not threatened under this rule.

RealBusiness urges action:

“Please don’t delay, write to your MP enclosing this article and the link to Chris Moss’ FSMA solution. Write also to the Prime Minister and Andrea Leadsom, Economic Secretary to the Treasury.”

We’re writing right now.

The post FCA threatens jail for crowdfunding chatter appeared first on Crowdfund Champion.

When you’re about to invest in a company you ask questions; you check balance sheets; you engage in due diligence, discovery and check criminal records. You meet the team. All these things are as true for investors using crowdfunding services as it ever has been, but author Dan Marom thinks these services make it even easier to make good investment decisions.

Crowdfunding wisdom

“I think crowdfunding is a crucial toolkit for an entrepreneur,” Marom, who wrote The Crowdfunding Revolution tells the Irish Times. “It’s the democratisation of entrepreneurship.”

Kickstarter isn’t the only crowdfunding site in town, he explains, there’s peer-to-peer lending, equity, donation and reward-based funding services — many of which are included within our directory of services.

While reward-based crowdfunding can be characterised as little more than buying a product in advance, equity-based crowdfunding means much more:

“It’s very popular to say it will destroy conventional venture fundraising, but my personal view is that the future lies in a synergy,” he says.

Can’t fool all the people all the time

You see, the advantage of pointing the crowd at business ideas is that it means those ideas come under far more oversight than any individual investor can possible deliver. You have a crowd of experts taking a look, rather than just the limited number that may exist inside your investment company.

“Sometimes it’s wiser to have the crowd do due diligence,” Marom notes, and while the crowd may not have complete expertise in the business it is being asked to look at, it’s a start. “It’s not easy to fool the crowd, but it could happen,” he says.

The potential positive impact of crowd-based decision making concerning new business ventures is one thing, but there’s another consideration that should please investors: In most cases the business itself has been vetted by the crowdfunding service.

Watch the line

Savvy investors already understand this, of course, which is why so many funding rounds fall around the 30 percent to 40 percent funding mark — usually around the line at which a founder’s personally aquired funds shut down. Businesses that rise above that line are potential investments for seasoned crowd investors, as achieving this means either the idea has impressed a lot of people or the people behind the idea have figured out their marketing.

There’s more in future, of course, Marom believes that it won’t be too long now until big firms begin to crowdfund ideas: “not just funding, but also crowd-sourcing new ideas and also, crowd-sourcing execution”.

Read the whole interview here.

The post Crowdfunding helps investors, says Dan Marom appeared first on Crowdfund Champion.

Sponsored by the City of London, Starting a Crowdfunding Business (£5/ticket) is aimed at those who already run or are planning to launch new crowdfunding platforms.

The event consists of a seminar with Governance, Risk and Compliance advisor, Jay Tikam, of Vedanvi Business and Risk Consultancy. Jay will explain how crowd funding businesses can become authorised with the Financial Conduct Authority, and how you can exploit that status once you achieve it.

From the event publicity:

“Crowdfunding and peer-to-peer lending is booming at an exponential rate. Recent research revealed that, globally, a new crowdfunding project is created every three minutes, with around 500 new projects created every day. The industry is currently doubling every sixty days!”

“Technology and funding, previously the biggest barriers to entry, are now no longer preventing entry of new players in this market place. The biggest obstacle now is getting through regulatory approval.”

Get your tickets at Eventbrite.

The post STARTING A CROWDFUNDING BUSINESS appeared first on Crowdfund Champion.