In
information released by the Crowd Funding Centre of The Social Foundation,
during the first couple of months of 2014, £2.4 million has been raised through
crowd funding in the UK. The number of equity and rewards projects that have
been launched has topped 2,600, and more than £1,700 an hour is being raised.
But
the Financial Conduct Authority (FCA) is concerned that
many investors may not understand the risks involved in investing in a start-up
business. While many new businesses have only been able to get going with funds
from crowd funding, statistics prove that between 50% and 70% of start-ups fail
in their early years.
Addressing the Risk
Bookkeepers and small business owners
should note that the FCA has therefore set up new regulations to come into
force in April that try to address this. Chris Woolard, its Director of Policy,
Risk and Research, said in a BBC radio programme, “We're trying to strike a balance between on one hand making sure
consumers are properly informed and have real clarity about the investments
they are getting into, but on the other hand, making sure this ... source of
funding is open to businesses and individuals."
One
of the most controversial new rules is that investors must certify that a crowd
funding investment will only be 10% of their investment portfolio. This has
provoked the comment that “it takes the crowd out of crowd funding” from Barry James, founder of The Crowdfunding Centre. It
will be interesting to see how this will affect the fund raising efforts of
businesses like Sian’s Plan, which recently started a crowd funding campaign
that invites investments as small as £10 from people who don’t normally have
investment portfolios.
Another Point of View
However, Ayan Mitra, CEO of Crowdbnk,
interprets this rule as for experienced investors only and said, “We are
pleased to see that the FCA has kept the ‘crowd’ in crowdfunding, by allowing
anyone to invest up to 10 per cent of their available assets. This ensures
crowdfunding remains available to all types of investor and, on the whole, we
think the approach strikes the right balance between consumer protection and
access to investment opportunities…”
So perhaps it is still worth going
the crowdfunding route to raise start-up or business development funds at a
time when many of the traditional routes are still virtually closed to SMEs. It
could be a good idea to discuss it with your outsourced bookkeepers who may have
experienced the results of this kind of fund raising with other clients.
