As you have noticed, FinSMEs recently started covering equity crowdfunding deals occurring on platforms such as Crowdcube (UK) and Symbid (The Netherlands). And while we are waiting the launch of other interesting platforms with distinguishing features such as Starteed, the advance of crowdfunding, with the birth of several platform in the USA due to the pass of the JOBS Act, is generating a battle for capital with banking and venture capitalists versus crowdfunding and crowd investing.
In the UK, the FSA recently said such investment activity is only appropriate for sophisticated investors (read here).
Today, we were joined by James King, founder of Find Invest Grow, a venture capital firm that invests in the businesses of students and recent graduates. He has pulled together his thoughts on the topic to provide us with some interesting insights.
“Crowdfunding for equity (defined as 30 + investors), or as we like to call it Crowd-venturing, in near enough every instance, is not appropriate for the retail investor. It’s good to see the FSA taking this stance, as without protection from the FSCS or FOS people were likely to end up hurt or angry.
“Whether the Crowd-venturing model takes off with sophisticated investors is another matter… yes they know what they’re doing and will have a better understanding the risks, but most investors would seek to approach companies directly (if they’re interested) to avoid the very high fees. They might also want to be actively engaged which Crowd-venturing can’t provide.
“If companies want to raise money from the general public they should list on a public stock exchange and provide the relevant material and public updates. Aside from the difficulty and significant cost in producing this, the normal business administration resulting from having hundreds or thousands of investors on your share register is punitive for a start-up.
“We think it is incredibly important for start-ups to take money from value added investors, Crowd-venturing will likely end up in either too many chefs or no chefs in the kitchen! That being said, we think passive investors play a valuable role in providing finance for start-ups. It is our opinion that the best vehicle for passive investors to invest is via a fund that invests in start-up companies in a sector that they like.
“In short, Crowd-venturing is effectively trying to create a public market without the controls – we try to separate out Crowd-venturing from crowd funding as crowd funding does works well for social projects or where benefits can be realised in creative projects i.e. You get a copy of the book, you get to design a character in the game, a private showing etc”.
What do you think?
FinSMEs